US Wayfair e-commerce ruling hits non-US retailers

On 21 June 2018, the US Supreme Court introduced a new ‘economic nexus’ test to determine if out-of-state online retailers are responsible for charging Sales Tax – South Dakota vs Wayfair, Inc (2018). The result will drag many non-US online retailers into the Sales Tax net for the first time.

Wayfair changes the basis of tax to the location of the consumer, reflecting the rules of most countries' VAT and GST rules, including the EU.

The ruling effectively overturned the previous test, Quill (1992), which limited the obligation to charge state or local Sales Tax to retailers with a physical presence in the states – which could be interpreted by states as employees or even just visiting sales people.

Quill meant that non-resident retailers selling to US consumers were largely exempt from having to charge state or local Sales Tax to their customers. This will cover not just South Dakota, which is expected implement the ruling in November, but other states - see table below - with similar laws which are now being modified to reflect the ruling requirements of the Wayfair case.

In addition to state Sales Tax, non-US Sellers will also have to consider the thousands of local Sales Tax jurisdictions. Companies will need to ensure they have adequate tracking of the exact location of their US customers, and what additional Sales Tax rates calculations, collections and filings will be required.

The Wayfair ruling included upholding a Sales Tax registration threshold of $100,000 or if the seller has more than 200 individual transactions in the state.

South Dakota was the first to get permission from the court, but several other states with economic nexus rules will follow its lead (see table below). Each state has a different start date and sales/transaction requirements that trigger nexus. Expect to see more states jump on board.

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