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

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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.
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