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.