3 Possible Wayfair Outcomes

  • June 01, 2018

Overturn, uphold or remand?

Tax professionals – especially those whose companies conduct e-commerce across state boundaries in the United States – are eager to learn which of those options the U.S. Supreme Court has selected in its South Dakota v. Wayfair decision. Interestingly, the Supreme Court justices voted on how the case will be decided following the April 17 oral arguments. The opinion is in the process of being drafted, and it will likely be published within the next few weeks.

There are three possible decisions in the case (here’s a quick review of the issue and what’s at stake):

  1. Overturning Quill and upholding the South Dakota statute: This would give the states the ability to impose “economic thresholds” to impose remote seller collection and remittance of sales tax.
  2. Upholding Quill and striking down the South Dakota statute: This would represent the “status quo” outcome. In this scenario, remote sellers would not be required to collect and remit sales tax. However, if this were to occur, it appears highly likely that states would respond by greatly intensifying their sales tax reporting requirements (along the lines of what Colorado now requires).
  3. Remanding Quill back to the South Dakota courts: This decision would require the South Dakota courts to take further action – specifically, to conduct more factual development if the Supreme Court determines that there was no factual determination on the “burden” issue under the Commerce Clause.

While tax professionals are eager to find out how the Supreme Court ruled, that doesn’t mean they should wait until the opinion is published to take action. Any of these three possible outcomes are likely to spark a flurry of activities that will create more work and new challenges for many tax functions.

Here are some steps to consider taking now to be better positioned once the decision is made public:

  • Start gathering data on gross revenues and/or the number of transactions that occur within states where the company sells remotely.
  • Prioritize states where the company has the greatest economic presence and create a plan to register to collect and remit sales tax (e.g., via a marketplace, or with a hosted, or cloud-based, technology solution).
  • Evaluate the financial statement impact of remote seller compliance. 
  • Review invoicing processes and controls, as invoicing errors that occur after the decision is finalized likely will result in more significant customer satisfaction and cash flow risks.

It's important to note that not just U.S.-based companies will be impacted by the Supreme Court's decision. Global companies selling to U.S.-based customers need to be prepared, regardless of how Wayfair plays out.

We'll update you on the Supreme Court's decision once the opinion is published.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.


About this Contributor

Michael J. Bernard Headshot
Michael J. Bernard
Chief Tax Officer, Transaction Tax

Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.

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