Skip to Content
Group of people sitting around a desk with their laptops
Article

Wayfair: Analyzing and assessing your risk

December 10, 2019 / 3 min read

If your business sells products in multiple states, you should perform a sales tax compliance risk assessment to determine your exposure to sales taxes in those jurisdictions. Here’s how to get started.

Much of the discussion about the Supreme Court’s decision in South Dakota v. Wayfair has focused on how the ruling affects Internet retailers. In reality, the economic nexus standard embraced by the Supreme Court will likely have some impact on all retailers and could also result in additional compliance requirements on non-retail businesses like wholesalers, manufacturers and distributors.

Assessing your risk for nexus

Businesses anywhere in the chain of commerce — from the initial manufacture of a product to the final purchase by an end user — should determine their exposure to state sales taxes and other filing obligations. For help with this process, consider using Plante Moran’s sales tax compliance risk calculator. If you determine your organization is at risk, work with your tax advisor to get help with:

Registering to collect sales tax

Once you identify the states where your business has an obligation, the next step will be to register with those states to collect sales tax. However, before you start the registration process you need to determine if your business has an existing sales tax obligation under the pre-Wayfair physical presence rules.

When you register, most states will send a “nexus questionnaire” asking about past activities in the state. The form will include questions such as:

This form is attempting to determine if your business had a physical presence in the state that might have triggered a sales tax obligation even before the economic nexus test became law. If the answer to any of the questions on the form is “yes,” your business may be liable for sales taxes as well as penalties and interest for the duration of the time it had a physical presence in the state.

Many states offer amnesty programs and Voluntary Disclosure Agreements (VDAs) providing penalty waivers that help businesses get into compliance with the law and meet obligations going forward. However, these options are generally not available once a business has started the registration process –– which is why it’s important to determine pre-Wayfair obligations before registering with a state to collect sales tax.

Marketplace facilitators

Further complicating the post-Wayfair compliance process is the effort by some states to impose sales tax obligations on “marketplace facilitators” like eBay, Etsy or Amazon. If your business sells through one of these sites, you will still have responsibilities to verify that the facilitator is collecting and remitting the proper amount of tax on your transactions. Failure to do so could result in liability for the taxes owed. In addition, your business may still have to register with the state and comply with tax rules on non-marketplace transactions.

Software alone is not enough

The software industry has developed a wide variety of products that can help your business manage sales tax collection. Many of the best solutions connect directly to your enterprise resource planning (ERP) systems to extract relevant data and perform sales tax calculations. These resources can make the compliance process easier in those states where you know you have an obligation, but they usually fall short when it comes to deciding where to file and keeping up with law changes in order to ensure ongoing compliance.

Most businesses operating in multiple states will need to supplement their software solution with ongoing tax advice from an experienced state and local tax specialist. An advisor can help map out your sales and use tax position with nexus evaluations and taxability determinations. They can identify voluntary disclosure opportunities and penalty mitigation programs to help clean up past sales tax mistakes, and they can keep you abreast of changes in tax law that could trigger new obligations in the future.

Most businesses operating in multiple states will need to supplement their software solution with ongoing tax advice from an experienced state and local tax specialist.

To learn more about how your business can integrate knowledgeable, experienced professional advice with your sales tax software solution, please contact Plante Moran.

Related Thinking

Group of people working in an open space office
January 9, 2020

Future of Wayfair: Sales tax nexus lessons learned and future considerations

Webinar 1 hour watch
A group of people sitting in an office watching a man presenting in front of them
May 17, 2021

Sales tax compliance after Wayfair: Don’t try this alone

4 min read
A group of people sitting in an office watching a man presenting in front of them
May 17, 2021

Sales tax compliance after Wayfair: Don’t try this alone

4 min read