Before 2018, sales tax obligations were largely tied to physical presence.
If a business had an office, warehouse, employees, or inventory in a state, that state could require the business to collect sales tax. If it did not, the burden technically fell on the customer through use tax, which was rarely enforced in practice.
That framework changed with the Supreme Court’s decision in South Dakota v. Wayfair.
The Court eliminated the physical presence requirement and allowed states to impose sales tax obligations based on economic activity alone. This concept is known as economic nexus.
In theory, the ruling was meant to modernize the tax system and level the playing field between online sellers and brick-and-mortar retailers. In practice, it shifted enormous administrative responsibility onto businesses that had never dealt with multistate sales tax before.
After Wayfair, states moved quickly to enact their own economic nexus laws. While the Court suggested that small businesses should be protected by safe harbor thresholds, it did not require states to adopt uniform rules.
The result is a patchwork of laws that differ by state.
Thresholds vary. Measurement periods vary. Definitions of what counts toward those thresholds vary. Registration timing varies.
For many small and mid-sized sellers, Wayfair did not just create new tax obligations. It created continuous monitoring obligations.
Every sale now carries the potential to trigger new compliance requirements in a state the business has never registered in before.
I’ve written previously about Wayfair’s unintended consequences for small remote sellers. What has become clear in practice is that the ruling exposed businesses to the full complexity of the U.S. sales tax system at scale.
Wayfair did not simplify sales tax.
It multiplied exposure to it.
