Podcast: Evolution of Wayfair v. South Dakota

On this episode of Weaver: Beyond the Numbers, Steven Scarborough sits down with Mayur Naik and Brandon Hayes to discuss the evolution of the Wayfair v. South Dakota court case and what has changed since its ruling.

Key Points:

• The Wayfair v. South Dakota case determined that companies can have an economic presence, not just a physical one, obligating them to collect sales tax
• Companies must be aware of varying state thresholds and definitions of nexus, impacting both sales and filing obligations
• Businesses can address potential noncompliance through voluntary disclosure agreements with states, often settling penalties and interest

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00:00:00

Steven: Hello and welcome to another edition of Weaver: Beyond the Numbers. My name is Steven Scarborough. I’m a tax partner in Weaver’s State and Local Tax Practice. Today I have with me Mayur Naik and Brandon Hayes. Brandon is a senior manager in Weaver’s State and Local Tax Practice, and Mayur is a partner in Weaver’s State and Local Tax Practice.

00:00:19

Brandon: Thank you. Appreciate it. Good to see you.

00:00:21

Steven: So for today’s topic, we’re going to be talking about Wayfair v. South Dakota. It’s been five years since the Wayfair ruling and there’s been a lot of changes that have affected a lot of businesses due to that decision.

Mayur, can you start by giving us a little background. What is Wayfair? People have heard this term, what does it mean?

00:00:40

Mayur: Sure. So in 2018, the company Wayfair brought a case against the state of South Dakota on what would create nexus in the state. Basically, the Supreme Court ruled that a company can now have an economic presence in the state and not only can they have an economic presence, they could also have a physical presence. So that completely changed up the game. They said, ‘Hey, if you sell X amount into our state, you now have an economic presence in the state and you have the obligation to collect sales tax.’ So that’s really the Supreme Court telling all the states that they’re trying to catch up with the times. There’s a lot of e-commerce, we’re doing a lot of business online. It’s no longer mandatory that you only have a physical presence of store location or people, you can now also have an economic presence in our state.

00:01:32

Steven: And I can imagine this for a lot of different types of companies, whereas before Wayfair, they only had physical presence maybe in one state or a couple. Now they have economic presence in a lot of states. This must have a pretty big impact on taxpayers and companies trying to operate.

00:01:47

Brandon: Yeah, absolutely. I think really the evolution occurred not just whenever the court decision came down in 2018, when the court rendered their ruling, most of the states did not start enforcing that day one. So I think that a lot of people had an opportunity to try to get their arms wrapped around it. But then we had COVID hit, and then all of a sudden everything changed. I don’t think that companies really embraced what that meant for their own organization.

So now, as Mayur was mentioning, before you had to have physical presence in order for a state to be able to impose their laws and regulations upon you. Well, once the ruling came down, now you have to look at what type of economic footprint do you have in jurisdictions. I think where a lot of companies end up getting caught up is that the ones that aren’t educated on the decision believe that economic nexus has replaced physical nexus, and it’s just not true. It actually has enhanced and bolstered the state’s ability to go after more people than what they would have before that ruling. Right? So now you have to look at not just where am I making sales or providing taxable services in a jurisdiction. I have to know exactly where all my other stuff is. I mean, how many companies now have employees that are working 100% remote, right? So it used to be that you could kind of count all your chickens in one basket because they were all in the same headquarters. Now, they could be anywhere, and all of those employees in those different locations could potentially create issues from a nexus perspective. In addition to the amount of economic activity that you have in these jurisdictions.

Watch the video above to hear the rest of the conversation on the progression of Wayfair v. South Dakota!