Wayfair Weighs in on Upcoming Nexus Litigation

Charles Maniace
April 10, 2018

In just a few short days (on April 17) the United States Supreme Court will hear oral arguments in the case of South Dakota v. Wayfair Inc. At stake is the future of the “physical presence” standard in determining a retailer’s obligation to collect and remit state and local sales tax throughout the country.

While we won’t know what the Justices will decide sometime this summer, last week, the “respondents” in this case (Wayfair, Overstock, and Newegg) submitted their written brief to the Court. What they said provides tremendous insight into their belief as to what will be important to the Justices as they weigh this decision. For those of you who do not have the time (or inclination) to read their 66-page argument, the main points can be summarized as follows:

  1. That e-commerce is already (largely) taxed today and that the tax gap caused by the prerequisite of physical presence is overstated
  1. Sales tax collection software is not a “silver bullet,” eliminating the challenges associated with multistate sales tax compliance
  1. Dropping the “physical presence” requirement will impact smaller businesses, who are not equipped to comply
  1. A decision in favor of South Dakota would expose thousands of sellers to retroactive liability for tax associated with transactions that may have happened years ago

In short – they are doing their best to leave the Court with the impression that acting could potentially cause chaos. That sales tax compliance remains incredibly complex, eliminating the physical presence standard exposes small to medium sized businesses to both prospective and retroactive liability for requirements they cannot meet, all in the name of claiming tax on a relatively small share of the economic pie. All in all, they would rather that the Court kick this issue over to Congress, who, theoretically, could carefully balance the economic interests at stake and articulate a clear national standard that requires true simplification by the states and protects small sellers.

As a solution provider, I was particularly struck by their argument regarding the software being unable to make sales tax compliance a manageable and affordable requirement. The authors contend that automation does not address the complex requirements of sourcing, non-uniform product definitions, caps, thresholds, bundled transactions, shipping charges, refunds, discounts, and tax holidays. This is, of course, not true. Sales tax software is particularly well suited (and fundamentally designed) to address these very requirements.

However, their strategy is not without merit. A valid argument exists that states have not exactly gone out of their way in making sales tax compliance easy. While the member states of the Streamlined Sales Tax Agreement have made significant strides over the last 15 years, complex registration, filing and taxability rules still prevail in many parts of the country. States have not necessarily taken a leap of faith in prospectively designing tax requirements that can be readily met by sellers from around the globe, large or small.

Whether the Court is persuaded by Wayfair, Overstock and Newegg’s arguments remains to be seen. However, even if that be the case, businesses need be aware that a decision retaining physical presence will not be the end of the story. E-commerce sellers that don’t collect tax cannot rest easy. If the Court opts to continue the status quo, states are likely to redouble their efforts in enacting rules that purport to work within the confines of physical presence (notice, affiliate/click-through nexus, cookie nexus, etc.) but stretch it as far it can possibly go in the name of capturing more and more of the e-commerce pie.

Take Action

Contact Sovos to learn how we can safeguard your business against the burden and risks of sales and use tax compliance.

Sign up for Email Updates

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


Charles Maniace

Chuck is Vice President –Regulatory Analysis & Design at Sovos, a global provider of software that safeguards businesses from the burden and risk of modern tax. An attorney by trade, he leads a team of attorneys and tax professionals that provide the tax and regulatory content that keeps Sovos customers continually compliant. Over his 20-year career in tax and regulatory automation, he has provided analysis to the Wall Street Journal, NBC, Bloomberg and more. Chuck has also been named to the Accounting Today list of Top 100 Most Influential People four times.
Share This Post

North America Tax Information Reporting
June 7, 2023
4 Ways to Elevate Your Direct State Reporting Process

Direct state reporting obligations have gotten increasingly difficult for some businesses over the past few years. With more states requiring direct reporting of form series 1099, more companies are subject to penalties if they do not comply with those obligations. As state reporting evolves, ensuring your process is efficient is critical. Strengthening your reporting process […]

EMEA VAT & Fiscal Reporting
June 7, 2023
The Value of SAP S/4HANA Add-On Software Certification

Many companies utilise SAP for their tax processes, but limitations in native software functionality add a layer of complexity. Custom coding is often required for businesses to achieve their desired results, producing the need for ongoing customisation and optimisation – this creates a hefty burden for companies, in addition to their tax compliance obligations. SAP-certified […]

North America Sales & Use Tax
June 5, 2023
Sovos Onboarding: 6 Departments Dedicated to Customer Success

If you are evaluating Sovos, we want you to understand expectations for the customer experience and what teams are there to support you. At Sovos, we have a range of teams ready to support you from the day you sign a contract. Whether it be a customer success representative to review the value you are […]

North America Sales & Use Tax
June 1, 2023
3 Things to Remember if You Get a Sales Tax Notice

Have you ever received a sales tax notice from a state department of revenue? Whether you answered yes or no, there are important things to keep top of mind to help keep your business prepared. Finding out that you have failed to comply with one or more of your sales tax obligations can be startling. […]

EMEA VAT & Fiscal Reporting
May 31, 2023
Bizkaia: What is Batuz LROE?

The Ledger of Economic Operations (Libro Registro de Operaciones Económicas), also known as LROE, is a main compliance element of the Batuz tax control system. This system is under implementation in the province of Bizkaia, located in the autonomous Basque community in Spain. Taxpayers under the Batuz mandate must comply with both TicketBAI and LROE […]