Wayfair Ruling’s Potential Impact on Financial Statements

calendar iconJune 3, 2020

Regardless of the industry, your company may face new financial obligations and potential exposure risks due to the Wayfair decision handed down by the U.S. Supreme Court last year (South Dakota v. Wayfair, Inc.).  Proper compliance with these new and complex economic nexus requirements is essential in order to avoid the underreporting of liabilities on your financial statements.

States are introducing new economic nexus requirements at record speeds. Since June 2018, when the Supreme Court announced its decision, 36 states have started requiring taxpayers to collect and remit sales tax on taxable sales made into the state if specific thresholds are met. The Wayfair ruling allows states to enforce collection requirements on out-of-state sellers even is these businesses have no physical presence in the states.

Most states are adopting a threshold of $100,000 in taxable sales or 200 transactions in the state. For some taxpayers, not complying with the collection requirements can result in the accruing of tax exposure at a rapid pace. Here are our charts showing each state’s threshold amounts.

Companies at Risk

  • Sellers of tangible property (not limited to ecommerce) – While sales tax generally applies to the “end user,” both wholesalers and retailers are affected. If economic thresholds have been met, sales tax must be collected and remitted, or exemption certificates need to be obtained.  Without proper documentation of exempt sales, potential liabilities increase.
  • Sellers of software, SAAS, and other technology – The taxability of technology varies widely among states. Generally, states look to the “user” of the technology to determine if thresholds are met. If end users cannot be identified, states will look to customer office locations where sales were made. Technology companies that exceed sales or transaction thresholds and do not comply with collection requirements may face potential liabilities.
  • Sellers of certain services – While many states exempt most services, there are a handful of states that tax them. Taxability is very specific to the type of service provided. As a result, there may be Wayfair implications in certain states where your services are taxable.
  • Government contractors – Direct sales to the U.S. government and most state governments are exempt. Wayfair does not change this result, however, it’s important to obtain resale exemption certificates if working for a prime contractor in states where thresholds are met. Any commercial sales would be affected as described above.

Avoid the potential for underreported liabilities by addressing Wayfair’s impact on your business sooner rather than later. If you are impacted, any delays in addressing this area will only result in the accruing of additional liabilities. For more information, please contact Lauren Stinson or Cathie Stanton.