A Hidden Issue with the New Wayfair Case

Written by: Gary Leneway

Earlier this year, the U.S. Supreme Court determined that the State of South Dakota can force Wayfair, and other similar online retailers, to collect and remit sales tax if they meet certain sales thresholds. The sellers will need to collect taxes if they had more than $100,000 in sales or 200 sales transactions to customers in South Dakota in the prior year. Since the Court’s ruling, other states have been assessing how they want to address this issue. Many states are already in the process of passing legislation similar to South Dakota’s law.

While many businesses are assessing the law’s impact to their business, their focus has been primarily on the taxation of sales to their customers. A hidden issue may also arise in a business’ purchasing department. As the law begins to take effect, businesses should be diligent in reviewing their invoices from out-of-state vendors to determine if sales tax is being assessed correctly. 

Purchases that qualify for exemptions related to manufacturing/industrial processing or resale might end up being inadvertently taxed due to the new rule. If your supplier doesn’t have an exemption form on hand for your business, and historically has not been charging sales tax because they were not required, you could end up being charged sales tax under the new law in error.

An annual review of your vendor files, and related tax exemption certificates, is always a good idea, but it may be particularly critical now.  FMD is recommending that all of its business clients review their vendor purchase invoices for the next year to determine if sales tax is being handled properly.  This exercise will help those companies from unexpectedly paying sales tax when not required and might alert them to issues where they are not paying tax but should.

If you have any questions about the Wayfair Case and how it affects your business, please reach out to an FMD CPA today.