PODCAST: The hidden hazards of Wayfair

Written on Jul 16, 2020

By Jessica Salerno, OSCPA senior content manager 


Two years after the decision in the landmark case South Dakota v. Wayfair, practitioners need to be aware of potential pitfalls for their clients.   

“Wayfair continues to pick up a significant amount of momentum,” said Paul Roth, CPA, tax principal at Blue & Co. 

He joined The State of Business podcast this week to discuss the impact of Wayfair, which removed the physical presence test as a requirement for states to impose sales tax nexus and the issues practitioners need to keep on their radar. 

“We live in a world today where clients change how they operate, and particularly how they go about generating their sales. And that changes dynamically over time,” he said. “First and foremost, it's important that you know your client, understand what your client is doing and what mechanisms they’re using to sell products.” 

He also said it’s crucial to know if your client sells through Amazon, as Amazon is allowed to control where inventory is held. Wayfair didn’t eliminate the Quill physical presence standard, so if Amazon stores inventory in a particular state, there is a physical presence in that state for both sales and income tax purposes. 

Roth noted many states had been pushing for this legislation for some time. 

“So not only are they being fairly cooperative and helping implement the necessary software and the things that need to be done to comply with the state requirements, but they're also being very aggressive in seeking out-of-state companies that are out of compliance,” he said. 

Roth said states have a significant latitude in what their Wayfair, or economic presence, will be. Most states are using the threshold used in Wayfair, which is 200 transactions or $100,000 of sales in a 12-month period. 

“Despite what some people have hoped for Wayfair is not going anywhere,” Roth said. “It's taken two decades for a case to get before the Supreme Court since Quill, which was the prior standard for sales tax. The court has ruled entirely unlikely that that the way fair economic presence concept is going to go away anytime soon.” 

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