Navigating The Wayfair Decision Five Years On: Five Key Implications For UK And EU Businesses On US Sales Tax Nexus
Five years on from the landmark Wayfair ruling by the U.S. Supreme Court in 2018, which significantly altered the landscape of sales tax collection, businesses are still being impacted irrespective of their geographical location. Understanding the implications of the Wayfair decision is crucial for UK and EU businesses entering the U.S. market, particularly as the landscape is still subject to change.
Prior to Wayfair, businesses were only required to collect sales tax in U.S. states where they had a physical presence (think buildings, equipment, employees, etc). The Wayfair decision expanded the definition of nexus, so that having an economic presence, without a physical one, could trigger sales tax obligations. This decision empowered states to enforce sales tax collection on transactions even if the seller lacked a physical presence.
Five Key Implications for UK and EU Businesses:
1. Economic Nexus Thresholds:
States that have enacted the economic nexus principle apply thresholds. These thresholds vary and are determined by factors such as sales revenue or the number of transactions conducted within a state. Once these thresholds are met, businesses are obligated to collect and remit sales tax. Typically, the threshold is USD 100,000 and/or 200 transactions in the last 12 months.
2. Complex Compliance Requirements:
Compliance with varying state tax laws can be complex. Each state has its own rules and regulations, making it essential for businesses with multiple nexuses to invest in systems that can accurately track and manage sales tax obligations across multiple jurisdictions.
3. Technology and Automation:
The Wayfair decision emphasises the importance of employing technology for sales tax compliance. Implementing automated solutions can help businesses stay updated on changing tax laws, calculate taxes accurately, and streamline the reporting process.
4. Impact on Pricing and Margins:
The imposition of sales tax can impact pricing and profit margins. It’s crucial to consider these factors when determining product pricing and assessing the overall competitiveness in the U.S. market.
5. Customer Communication:
Transparent pricing with U.S. customers is vital. Clearly stating the inclusion of sales tax in the final price can help manage customer expectations and avoid potential disputes.
Please contact us if you think you may need help determining your sales tax exposure in the U.S.