Unpacking the Supreme Court’s “Wayfair” Decision: Part 1

In June, just a few days before announcing his upcoming retirement, Justice Anthony M. Kennedy authored a Supreme Court decision with profound implications for the sales tax environment. Overturning a couple of the Court’s earlier rulings, South Dakota v. Wayfair allows states to require remote sellers to collect sales tax on out-of-state transactions. To help tax professionals understand the impact on their business, Vertex conducted a webcast Supreme Court S. Dakota v. Wayfair Decision … Now What?

Dave Pelton, Vertex product line leader for transaction tax, is joined by three panelists: Michael Bernard, chief tax officer for transaction tax for Vertex; Nancy Manzano, director in the chief tax office at Vertex; and Rick Heller, managing director in the technology, media and telecommunications practice of Deloitte Tax.

The discussion is lively and wide-ranging; here are a couple of highlights:

• How are the states reacting? In general, states have been quick to react, and several have issued updates (which we’re tracking here). These include some states that have South Dakota-like economic nexus statutes already in place, though the thresholds they apply may differ from South Dakota’s $100,000 in gross revenue or 200 transactions in the state. Massachusetts, for example, requires sellers to collect and remit sales tax when they have more than $500,000 in online sales and 100 or more transactions. Other jurisdictions are still reviewing the Court’s ruling; one state – New Hampshire – has floated what Rick Heller describes as an “anti-Wayfair proposal.” It would require any state that wants to audit a New Hampshire-based online seller to register with the Granite State’s Department of Justice.
• Will states impose new requirements retroactively? The panel discussed concerns that obligations might be imposed for periods pre-dating the Court’s decision, as Hawaii had initially proposed. However, on the same day that we recorded the webcast, Hawaii reversed course on retroactivity. That swift switch underscores the importance – and challenge – of tracking states’ unfolding reactions to Wayfair. For now, the prospects for retroactivity seem dim from the states’ point of view. As Michael points out, “one of the reasons that Quill [a Wayfair precedent] was not upheld was because there was a retroactivity piece in there, and South Dakota did not have that.”

The webcast traverses a lot of territory, more than I can cover in a single post. I’ll look at some other key topics in my next post.

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.