Wayfair Agreement: What It Means for Online Retailers and Consumers

In June 2018, the Supreme Court of the United States issued a ruling on South Dakota v. Wayfair, Inc., a landmark case that has reshaped the landscape of online sales tax. The decision allows states to require online retailers to collect and remit sales tax, even if the retailer has no physical presence in the state.

What is the Wayfair agreement?

The Wayfair agreement is not an official agreement, but it refers to the ruling in South Dakota v. Wayfair, Inc. that allows states to require online retailers to collect and remit sales tax. The decision overturned the previous ruling established in Quill Corp. v. North Dakota, which stated that states could only require retailers to collect and remit sales tax if the retailer had a physical presence in the state.

The Wayfair decision allows states to collect sales tax from out-of-state retailers with more than $100,000 of sales or 200 transactions within the state in the current or previous year. The ruling upholds South Dakota’s economic nexus law, which requires remote sellers to collect sales tax if they meet the criteria.

How does it affect online retailers?

The Wayfair decision has significant implications for online retailers, especially those who sell goods across state lines. Retailers now have to navigate a complex web of sales tax laws and regulations, and ensure that they are collecting and remitting the correct amount of sales tax for each state.

Retailers need to consider the following factors:

1. Economic nexus: Retailers need to determine if they meet the economic nexus threshold in each state, based on the sales or transaction volume.

2. Sales tax rates: Each state has its own sales tax rate, which can vary based on location, product type, and other factors.

3. Exemptions: Some products or services are exempt from sales tax, such as groceries or medical supplies.

4. Product categorization: Retailers need to ensure that they are classifying their products correctly for sales tax purposes.

5. Compliance: Retailers need to ensure that they are collecting and remitting sales tax correctly, and keeping accurate records.

Failure to comply with sales tax laws can lead to costly penalties and legal issues for online retailers.

How does it affect consumers?

Consumers may see an increase in prices for goods purchased online as a result of the Wayfair decision. Retailers may pass on the cost of collecting and remitting sales tax to consumers, especially for small businesses that may struggle to absorb the cost.

However, the decision also levels the playing field between brick-and-mortar stores and online retailers. Previously, online retailers could offer consumers lower prices because they did not have to collect sales tax, which gave them a competitive advantage over physical stores. Now, online retailers will have to charge sales tax, which could make prices more comparable between online and offline stores.

Conclusion

The Wayfair agreement has significant implications for online retailers and consumers. Online retailers will have to navigate a complex web of sales tax laws and ensure compliance with each state’s regulations. Consumers may see an increase in prices for goods purchased online, but the decision levels the playing field between brick-and-mortar stores and online retailers. It remains to be seen how the decision will impact the e-commerce industry in the long term.