Wayfair Decision is Clear and Present Danger to Sales Tax Status Quo

Charles Maniace
March 28, 2018

These days, if you put two or more sales tax professionals into a room, it won’t be long before the conversation turns to the South Dakota v. Wayfair case currently scheduled for oral arguments before the Supreme Court on April 17. In fact, with 38 Amicus Curiae briefs filed to date, it feels like the entire sales tax community is personally involved!

The arguments favoring overturning Quill are strong and compelling. Regardless of your opinion on which party should prevail, everyone (tax professionals and state regulators alike) should recognize the substantial likelihood that we could soon be living in a world where “physical presence” is no longer a barrier to sales tax collection and remittance responsibility.

Quill – What Happens Next?

The Justices could take any number approaches in their Opinion (which could come as soon as June) each leading to outcomes that could impact governments and businesses differently. The Court could:

  1. Uphold Quill as the law of the land. There is an argument to be made (although it has not been made that loudly) that states are free to say that most e-commerce retailers have nexus today based on the presence of in-state software;
  2. Overturn Quill and call on Congress to articulate a legislative requirement such as those contained in the Marketplace Fairness Act and the Remote Transaction Parity Act;
  3. Overturn Quill and remand the case back to the South Dakota state court system to determine if their standard ($100K in business of 200+ annual transactions) is acceptable;
  4. Overturn Quill and articulate what sort of economic nexus standard would pass constitutional muster;
  5. Overturn Quill and hold that there are no Commerce Clause barriers to the imposition of sales tax on remote commerce.

Perhaps it’s this tremendous uncertainty that prevents both governments and businesses from acting now to prepare for a post-Quill world, but they really should….

What Should State Governments and Businesses Be Doing Now?

State governments need to reconsider many of their standard practices, which are based on a finite number of companies with collection and remittance obligations in their state.

  • They should consider how quickly and efficiently they can register taxpayers. In many states, becoming properly registered takes weeks, culminating with a taxpayer registration number received via snail-mail.
  • They should evaluate whether their laws can be easily understood. Simplicity facilitates compliance. The more subtle and nuanced your sales tax rules are, the more likely that e-commerce sellers will get it wrong.
  • Most importantly, states should reconsider their approach to audits. Audits today continue to be extraordinarily time and labor intensive for taxpayers and regulators alike. States might benefit from lessons learned by their European counterparts who are adopting digital audit file standards (e.g. SAF-T) which facilitate the transmission and analysis of transactional data.  

Businesses need to accept that regulatory change is on the horizon and re-consider their approach to compliance. Do they have technology in place that would allow them to drastically scale up the number of jurisdictions in which they are required to register, collect and remit sales tax? Can they do all these things with the requisite timelines and ensure accuracy? Are they prepared to extract and provide transactional data to regulators from across the country?    

It’s no secret that many of today’s tax professionals are forced to react and scramble to be in compliance with legislative changes as they happen. Common causes vary from relying on manual vs. automated processes to disparate ERP and other tax data-related technologies managing tax compliance across the business, or just the sheer luck of avoiding a business crippling audit to date that catches the attention of the CFO.

Don’t be “the last one left without a chair when the music stops.” Contact Sovos today to learn how we can put the Intelligent Compliance Cloud to work for you.

Unless you have a “get out of jail free card,” we recommend proactively preparing for major legislative change, today.

© Image courtesy of Paramount Pictures

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Charles Maniace

Charles Maniace is Vice President – Regulatory Analysis & Design at Sovos. An attorney by trade, Chuck leads a team of attorneys responsible for all the tax and regulatory content that keeps Sovos clients continually compliant. Over his 14 year career in tax and regulatory automation, he has given talks and presentations on a variety of topics including The Taxation of High Tech Transactions, The Taxation of Remote Commerce, The Regulatory Implications of Brexit, The Rise of E-Audits, Form 1042-S Best Practices and Penalty Abatement Practices for Information Returns. Chuck is a member of the Massachusetts Bar and holds a B.S. in Business Economics from Bentley College, a J.D. from Boston University School of Law, and an LL.M in Taxation from Boston University School of Law.
Share This Post

Tax Information Reporting United States
December 12, 2019
The Affordable Care Act is Alive and Kicking

Despite what you may have heard, the Affordable Care Act (ACA) tax reporting requirements are not dead. In fact, enforcement of the Employer Shared Responsibility Provisions (ESRPs) under IRC 4980H is very much alive at the federal level. And states are enforcing the individual mandate. Federal Enforcement of ESRPs Many employers and other filers of […]

ShipCompliant United States
December 12, 2019
2019 ShipCompliant End-Of-Year Webinar

In our end-of-year webinar we covered the news and changes that encompassed the beverage alcohol industry in 2019. We discussed industry growth, the latest trends like hard seltzer and canned wine, and recent regulatory updates like the Tennessee Wine & Spirits v. Thomas decision.  Industry growth through ShipCompliant data 2019 was a busy year for […]

EMEA Tax Compliance VAT & Fiscal Reporting
December 12, 2019
Norway to Mandate SAF-T Reporting from 2020

Mandatory SAF-T (Standard Audit File-Tax) reporting will be introduced in Norway from 1 January 2020. Use of SAF-T, a standardized XML format containing exported accounting information, remains voluntary until that date. SAF-T is designed to reduce compliance and administrative costs for businesses and revenue bodies and enhance audit outcomes.  Its standardized, easily readable layout and […]

Tax Information Reporting United States
December 10, 2019
Illinois Enacts Form 1099-K Reporting Requirements

For the first time in state history, the Illinois state legislature has enacted form 1099-K reporting requirements as part of the FY20 Budget Implementation Act.   This change is a new direct state reporting requirement for payers of income made to Illinois residents. For 2019 reporting, Illinois requires form 1099-K reporting to be submitted to them […]

Sales & Use Tax United States
December 10, 2019
5 Predictions for Sales Tax in 2020

As we sit on the cusp of 2020, we find ourselves living in a world where almost every state imposes tax collection and remittance obligations on remote sellers (an increase of 50 percent from last year) and where a majority of states have enacted rules that impose new tax collection and remittance responsibilities on third […]