Multistate – How the Wayfair Decision Sparked a Digital Transformation in Tax

The Wayfair decision changed the landscape of state sales tax and made compliance much more difficult for all sizes of businesses. 

Two years have passed since the South Dakota v. Wayfair, Inc. Supreme Court ruling granted states the ability to impose sales tax obligations on the online sales made by remote sellers

With 43 states and the District of Columbia currently enforcing a Wayfair-related law, the expansion of nexus obligations has forever changed how businesses manage the entire transaction life-cycle. 

While the ruling itself granted states the ability to tax remote sellers, the decision to implement any resulting legislation has been left up to each state’s discretion. Consequently, the sales volume and transaction thresholds that trigger remote economic nexus obligations vary from state-to-state and are constantly changing.

Why digital transformation in tax exploded post-Wayfair

The rise of e-commerce platforms and online marketplaces has radically changed the expectations that buyers have when it comes to shopping, leading to a steady decline in traditional retail shopping, and an uptick in online commerce. 

Businesses rely on omnichannel strategies to sell to customers around the world, and online marketplaces to merchandise their products to a broader customer base. While this rapid expansion of selling channels among online businesses was enough to trigger a massive explosion in digital transformation across the finance function alone, it wasn’t until after the Wayfair decision that we saw tax compliance really be brought into the fold for digital transformation. 

While the rise of digital commerce and multichannel selling increased the sales tax complexity for many businesses prior to Wayfair, manual compliance management was still sufficient for many sellers who only had sales tax obligations in a handful of states. When those obligations skyrocketed due to economic nexus laws, many businesses quickly learned that managing transaction data for multiple online channels serving customers across the globe would require technology that could handle the entire compliance process from calculation to returns. In fact, a recent survey of business leaders found that 68% of businesses have adopted accounting software to manage the compliance challenges brought on by the Wayfair decision, while 43% have implemented an automated tax compliance solution. 

Covid-19 impacts

The financial impact of stay-at-home orders brought on by the global pandemic has prompted more businesses to turn to online sales. For many businesses, this is the first time they’ve explored e-commerce and for others, their online presence has expanded rapidly. Since the onset of the pandemic, businesses without an online presence saw a decrease of 74% in transactions when compared to those in the industry who are able to sell online. During a time of rapid change, businesses will likely turn to technology to make the transition to online as easy as possible while managing risk throughout the process.

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Bloomberg Tax
By Amit Mathradas
June 15, 2020