Selling into the U.S. since the Wayfair Decision
October 1, 2021
The Wayfair decision changed the commercial landscape in the U.S. In a nutshell, it was a Supreme Court decision in which the court held by a 5–4 majority that states may charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state. For example, previously a Florida based retailer could sell goods into California without having to worry about collecting California sales tax. The pre-Wayfair landscape always felt a little bit arbitrary – the policy clearly favored out of state and international vendors over in-state ones. A New York resident would find that a book purchased online from a Pennsylvania based bookstore would be cheaper than the same book purchased from a New York based one, even though the actual underlying retail price was identical.
Since the Wayfair decision, states are free to apply sales tax to any sale, regardless of where it originates. Compliance for domestic companies that sell online is generally outsourced to a specific platform such as Avalara or Tax Jar – smaller international sellers have been a little slower to adopt a solution, with many smaller companies avoiding withholding/remitting any sales tax based on a lack of knowledge or capacity to assesses it. Even so, many smaller international sellers won’t have to directly deal with tax compliance:
For very small international sellers, there is generally no need to charge sales tax, as most states have a minimum annual threshold amount (e.g. $100k in Florida), below which sales are not subject to sales tax. Accordingly, a French jewellery designer that sells a few dozen bespoke pieces per year to residents scattered throughout the U.S. generally won’t reach the threshold in any state (no state has a threshold below $100,000).
All states that assess sales tax (which is all states except for Montana, Delaware, New Hampshire and Oregon) have introduced Marketplace Facilitator legislation which requires any platform that facilitates the sale (e.g. Amazon.com) be responsible for calculating, collecting, remitting and refunding state (but not necessarily local) sales tax.
The vendors that aren’t covered by the above tend to be involved in B2B sales – e.g. a French manufacturer of industrial-scale wine bottling machines would by default be above the threshold (as a single sale would exceed the threshold), and would general sell directly to businesses. For these companies, compliance tools are becoming increasingly important, which explains the rapid growth of companies offering these solutions. Even where such companies have seasoned accountants and Europe-based tax specialists, many are turning to these compliance tools due to the 11,000 separate tax jurisdictions in the United States.
Ultimately, while companies’ compliance burden has increased the Wayfair decision has provided a fairer outcome for states and levels the playing field by making it more difficult for residents in states with a sales tax from avoiding tax through out-of-state purchases.
