The Wayfair Decision: A Narrow Squeak
The Wayfair Decision
In 2018, the Supreme Court decided to go back on its decision about the sales tax nexus made in the case of Quill. Quill established that an out-of-state seller could only be required to collect sales tax if they had a physical presence in a state. Under Wayfair, the Supreme Court determined that states could set other definitions of nexus. Economic nexus, the idea that doing a certain amount of business in a state was equal to having a physical presence, has become the standard for most states that have sales taxes.
But Wayfair was a very narrow decision. Five of the nine justices were in favor of this decision, and four were opposed. Chief Justice Roberts and Justices Breyer, Sagan, and Sotomayor all disagreed with that decision.
Why?
Court of Congress?
The main reason the justices had for opposing the Wayfair decision was that it should be Congress, not the courts, that decided the issue. “The Court argues in favor of overturning that decision because the ‘Internet’s prevalence and power have changed the dynamics of the national economy,’” Roberts wrote. “But that is the very reason I oppose discarding the physical presence rule. E-commerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical presence rule. Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress.”
The courts are supposed to interpret the law, not make laws. The dissenting justices felt that the Wayfair decision was more like making a new law than interpreting an existing law.
Congress had been working toward laws like the Marketplace Fairness Act for years. Frustration at the inability of Congress to decide on a law of this kind may have been one reason that the Wayfair case went to the Supreme Court. In fact, Ted Cruz wrote in a friend of the court brief that“Overturning Quill would undo much of Congress’s work to find a workable national compromise under the Commerce Clause.”
But nearly half the court agreed that Congress should have made the decision, rather than the courts.
Fairness
The dissenting justices agreed that the court was trying to make sales tax more fair. The claim was that consumers would shop online in order to avoid paying sales tax, putting their local shops at a disadvantage. But, as Roberts pointed out, 80% of e-commerce transactions at that point were already collecting sales tax. The Marketplace Fairness Act was nicknamed “the Amazon tax” in reference to Amazon.com, the retail behemoth that held out against collecting sales tax for years. By 2018, however, Amazon had given in and was collecting sales tax in every state that has a state sales tax.
The other large retailers, including Walmart and Target, had stores in every state and were therefore collecting sales tax already. The Wayfair decision was harsh for small businesses and manufacturers, not for e-commerce giants.
“The Court’s focus on unfairness and injustice does not appear to embrace consideration of that current public policy concern,” wrote Roberts. “The Court, for example, breezily disregards the costs that its decision will impose on retailers. Correctly calculating and remitting sales taxes on all e-commerce sales will likely prove baffling for many retailers. Over 10,000 jurisdictions levy sales taxes, each with ‘different tax rates, different rules governing tax-exempt goods and services, different product category definitions, and different standards for determining whether an out-of-state seller has a substantial presence’ in the jurisdiction.”
Sales Tax Software
The court’s decision in the Wayfair case did not just assume that software would solve the problems of remote sellers but actually said so. Off there wasn’t a software solution immediately available, they said, there surely would be one soon because of market forces.
The dissenting justices disagreed. They referenced a friend of court brief from Etsy that said, “South Dakota asserts that Quill’s bright-line rule no longer is necessary to protect small businesses from crippling compliance obligations because modern software makes it simple to accurately calculate sales taxes nationwide. In an era accustomed to technological leaps and marvels this may sound plausible, but it is a chimera. No piece of software code can accurately account for how thousands of tax codes (with inconsistent rules, jurisdiction to jurisdiction, that frequently change) apply to tens of thousands of products.”
Sales Tax DataLINK uses a patented process and an unusually robust built-in sales tax engine with 1.6 million data points. Our software is much more accurate and easy to use than the run-of-the-mill. What’s more, you can outsource your sales tax compliance to us completely, providing a solution that, as our clients are quick to say, takes the stress out of sales tax.
Still, we recognize that many small businesses are not using sales tax software like ours and that the most commonly used sales tax software packages can be very frustrating.
Congress in the Future?
The Congressional Research Service prepared a report for Congress that explained the Wayfair decision and quoted the Supreme Court as saying that “Congress may legislate to address these problems.”
The Senate Finance Committee has since spoken firmly on the subject. Several bills have been introduced in Congress that would undo the Wayfair ruling, including the Stop Taxing Our Potential Act (S. 128) and the Online Sales Simplicity and Small Business Relief Act (H.R. 1933) as well as similar bills. At this point, Wayfair stands, but there have been challenges in the courts and Congress could still make changes.
In the meantime, Sales Tax DataLINK is your best bet for making your multi-state sales tax compliance smoother. Call 479-715-4275 to set up a demo with your own data.
