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Wayfair - What If the Respondents Were NOT Billion Dollar Sellers?

author photo of Annette Nellen

The U.S. Supreme Court's ruling in South Dakota v. Wayfair, Inc., et al, on June 21, 2018 is a landmark one, overturning 51 years of precedent to find that physical presence is not the appropriate standard for nexus. I won't go into the details as much has been written about the case (for example, do a search for "Wayfair" on

South Dakota's law change in 2016 (SB 106) provided that a vendor had sales tax collection obligations if it had over $100,000 of gross revenue into the state or 200 or more transactions in the previous calendar year or the current calendar year. South Dakota is a member of the Streamlined Sales and Use Tax Agreement (SSUTA) so provides software and other resources to help vendors comply.

The Court found that the "economic and virtual contacts respondents have with" SD were sufficient for nexus. SD law also included features "designed to prevent discrimination against or undue burdens upon interstate commerce." The three features:

  1. A small vendor safe harbor (the $100,000 of sales or 200 or more transactions in 12 months threshold);
  2. The law does not apply retroactively; and
  3. As an adopter of the SSUTA, SD law has features that "reduce administrative and compliance costs" such as uniform definitions, and access to software with audit protection for using it.

One of the aspects of the case that I find interesting is the size of the three plaintiffs. Wayfair, Inc.,, Inc., and Newegg, Inc., all have sales over $1 billion per year. The first two are publicly traded companies (links are to their recent 10-K reports and for Newegg, to a 2009 S-1 report). If you don't know the background of these companies, I encourage you to look at the 10-Ks (see links) of Wayfair and It really hits you that these are really tech companies, using the technology to create unique shopping experiences - 21st century retailers. The co-founders of Wayfair are engineers who "created a company culture deeply rooted in technolgoy and data." Wayfair has a "team of over 1,300 engineers and data scientists" in their workforce! That is out of 7,751 full-time equivalent employees (per the 2017 10-K report).

Certainly, based on size and technical expertise and ability to navigate many laws including those of the SEC, these respondents will have no problem collecting sales tax. Wayfair has already indicated such in a 6/21 press release where it says it already handles sales tax on about 80% of U.S. orders. They "do not expect today's decision to have any noticeable impact on our business, as it may on other retailers who do not currently collect and remit sales tax." On 6/28, stated that its decision to voluntarily collect in all tax jurisdictions has not led to any noticable sales decline.

Would a small remote vendor selling 200 or more $5 items into South Dakota be able to make the same claims? That is - no problem collecting? I don't think so.

What if instead of three very large retailers, the respondents were vendors who barely crossed the SD safe harbor thresholds? Would the Court have taken a different perspective?

Of course, the Court did remand the case to the SD Supreme Court, but the respondents remain the same.

While over $100,000 of sales into a state is arguably a good indicator of a company large enough to handle sales tax collection, the 200 or more transactions is not. Is the number of transactions safe harbor even needed? Why not just use gross receipts? Yes, a company might sell a single item costing $90,000, but the state has other ways to handle such transactions. Such a sale would likely be to a business and the business buyer could be required to self-assess the sales tax on the spot. If it was an individual buyer, chances are good it was a car, boat or plane that needs to be registered and sales/use tax can be collected then. If it were artwork, jewelry or clothing, alternatives would be needed, but doable.

Many states are following the SD approach. I suspect that we'll see near future litigation with a small vendor challenging the existence of substantial nexus based on 200 transactions in a year of nominal value each.

What do you think?

Other recent “Sales Tax Policy - Tales & Trends” posts by Annette Nellen, CPA, ESQ:

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