Wayfair: Its Implications and Missed Opportunities
Richard D. Pomp, Wayfair: Its Implications and Missed Opportunities, St. Tax Notes (2019)
38 Pages Posted: 28 May 2019 Last revised: 20 Sep 2021
Date Written: June 10, 2019
This Article focuses on the United States Supreme Court’s decision in South Dakota v. Wayfair, Inc., its implications, and the Court’s missed opportunities. After an overview of the Wayfair case in Part I, Part II argues that the term “substantial nexus,” mentioned only once, and for the first time in a state tax case, in Complete Auto, should be given no weight. The Court in Quill latched onto the flawed term to bifurcate Commerce Clause and Due Process Clause nexus. This bifurcation served the Court’s political agenda by removing any due process obstacles to Congress’s intervention while protecting the reliance interests of the remote vendors. Wayfair should have discarded the term and returned the concept of nexus to its roots in the Due Process Clause, but it did not.
Part III contends that although Wayfair dealt only with the sales tax, its implications extend widely. A taxpayer can no longer make a credible argument that physical presence is a prerequisite to satisfy nexus, even in the context of taxes other than sales and use taxes.
Part IV explains that Congress can always overrule Wayfair and may now have the political impetus to do so. It is at least more likely that Congress will act post-Wayfair, where it can be viewed as protecting vendors, than it was pre-Wayfair, where Congress might have been viewed (incorrectly) as imposing a new tax on Internet purchases.
Part V urges states not to eliminate their pre-Wayfair techniques for sidestepping Quill, such as click-through nexus and Colorado-style reporting. This is because Congress might reimpose physical presence as the nexus standard. Additionally, as states seem not to be applying Wayfair retroactively, there will be open audit years when physical presence will remain the relevant nexus standard. Thus, pre-Wayfair techniques will still be relevant and should be held in reserve to draw on when necessary.
Part VI allays fears about the possibilities that offshore vendors will either refuse to collect the market state’s use tax or collect the tax and fail to remit it.
Part VII briefly summarizes state reactions to Wayfair and explains why there will not be a rush to adopt the Streamlined Sales Tax Agreement. This Part also offers advice about how to draft a post-Wayfair statute, suggesting that a transaction threshold as an alternative to a sales threshold is not particularly useful. States should instead consider requiring vendors to satisfy both a transaction and a sales threshold. But if a state wishes to only use one threshold, it should be sales and not transactions. Furthermore, this Part reiterates that states should retain their existing rules on physical presence, which may be needed during open audit years or if Congress overrules Wayfair. Eliminating these rules would gain nothing and could even result in lost revenue in some circumstances.
Part VIII explores the Pike balancing test, which has played no significant role in state tax cases, but has been elevated by Wayfair into a key feature of Commerce Clause jurisprudence.
Finally, Part IX focuses on local sales and use taxes, predicting that this area will be the source of future litigation.
Keywords: Tax, law, tax law, South Dakota, Wayfair, nexus, Commerce Clause, Due Process Clause, sales tax, use tax, state tax
JEL Classification: k34, h70, h71
Suggested Citation: Suggested Citation