Wayfair is known not only for their broad selection of home décor but are now also famous for the South Dakota v. Wayfair, Inc. lawsuit from 2018. This case brought about the biggest change in sales tax legislation in the last 25 years.
Sales tax nexus is the connection between a seller and a state that requires the seller to register and then collect and remit sales tax in that state. Prior to the Wayfair case, nexus for sales tax was determined by a physical presence in the state. If you had physical presence or a remote employee in a state, then you were required to collect and remit sales tax. Simple enough, right? But as online sales became increasingly popular, states recognized they were missing out on revenue and demanded a change. Since the Wayfair case, sales tax nexus is now determined by each state and no two state’s laws are the same. Over 40 states have adopted what is called economic nexus rules. These rules are based on economic activity such as sales revenue, transaction volume, or a combination of both. This change has created the need for companies doing business in states in addition to their own, to evaluate each and determine if they are compliant in all. If not, they will need to register with the state and ensure they are up to date with sales tax reporting and collections. It is prudent to be proactive to mitigate exposure.
This is when you turn to your trusted advisor, your accountant, for help. At ADKF, we would work with you to determine nexus by first completing a nexus study to identify the states in which your company does business and may have nexus. Then we would determine the filing requirements for each state and discuss with you if state registration is warranted. Lastly, we would research the states’ amnesty program or voluntary disclosure agreement to assist in advising you of the options available.
At ADKF, our Department of Tax Controversy offers a variety of services, including nexus studies. We would be happy to assist you in determining which states you have nexus and then work with you to develop a strategy to become and remain compliant. Contact Us to discuss your nexus needs.