Aftermath of Wayfair – State Tax Nexus Update

It’s been over two years since the U.S. Supreme Court shook up the state tax world in South Dakota v. Wayfair (Dkt 17-494, 6/21/2018) holding that physical presence was no longer required for a state to impose a sales tax collection responsibility on out-of-state businesses. (1) Since that time, all but two states (Florida and Missouri) have adopted Wayfair economic sales tax nexus thresholds with various effective dates largely beginning on October 1, 2018, January 1, 2019 or sporadically throughout 2019. (2)

Most states have adopted thresholds modeled after South Dakota’s law – greater than $100,000 of gross sales or 200 transactions in prior or current calendar years. However, states do vary – and a few use an and test, have higher sales thresholds (example: $500,000 sales in CA, NY and TX), do not utilize a transaction test, impose the testing on a rolling 12-month or four-quarter period and/or focus on retail sales (example: sales not made to customers for resale purposes). (3) The most egregious of these states is Kansas, which does not provide for any sales or transaction threshold. Presumably, a sales tax collection requirement exists upon making the first taxable sale to a customer in Kansas. 

We expect state nexus and audit inquiries of out-of-state companies to increase substantially starting next year for several reasons, including:

  • Many states are now reaching or coming close to having their Wayfair economic sales tax collection responsibilities in place for two years, which may start falling into their normal audit cycle;
  • State Department of Revenue offices have largely reconfigured their logistics to work more remotely and are no longer substantially delayed in taking on their normal audit duties; and
  • State budgets have been negatively impacted due to reduction in taxes from the COVID-19 recession, emphasizing the need even more for states to collect additional revenues from out-of-state companies.

Besides the expected increase in state audit activity, there is another reason to be concerned about state tax nexus. If or when the owners of a company decide to sell their business, potential buyers have been more consistent in including state taxes in their due diligence studies, including and especially for state uncollected sales taxes to justify substantial reductions in their offer prices. Therefore, it is prevalent that companies evaluate their state filing requirements and exposures if they have not recently done so.

For the remainder of this two-part article, we will discuss the developments in the Wayfair economic nexus area, including collection requirements for marketplace facilitators and the states’ next move – the practical elimination of the protections provided by Public Law 86-272.

Wayfair Developments

There are several changes that have either recently occurred or will take effect on January 1, 2021:

  • Illinois has provided a flow chart to help sellers, including remote and marketplace facilitator sellers, to determine the proper local sales tax to collect effective January 1, 2021 (currently just need to collect and remit the state’s 6.25% use tax);
  • Georgia reduced its sales threshold from $250,000 to $100,000 effective back to January 1, 2020;
  • Tennessee has reduced its sales threshold from $500,000 to $100,000 effective October 1, 2020;
  • Arizona’s sales threshold completes its phasedown from $150,000 to $100,000 effective January 1, 2021;
  • Louisiana made their Wayfair economic sales tax nexus provisions officially effective on July 1, 2020;
  • Though the state of Alaska does not impose a sales tax, its cities do; and they recently came together and formed a commission authorizing member cities to require out-of-state companies to collect and report their city sales taxes with the earliest effective dates occurring back in February (for more information, please visit the Alaska Remote Seller Sales Tax Commission:;
  • Colorado Municipal League developed a municipal ordinance to impose local sales tax collection responsibilities on out-of-state companies for cities that do not have their local sales taxes administered by the state (for more information, please visit the Colorado Municipal League website:—economic-nexus-marketplace-facilitators).

Marketplace Facilitators

Many retailers sell online through marketplace facilitators, such as Amazon and Etsy. Therefore, to assure sales tax collection on these sales, all but three states (Florida, Kansas and Missouri) have adopted Wayfair type economic sales thresholds requiring marketplace facilitators to collect sales taxes on all of its sales – both their own and those made on behalf of third-parties that sell through their online platforms. The definition of a marketplace facilitator does vary by state but generally includes a business that collects payment from a purchaser and facilitates in some way the sale of that third-party product or service to the purchaser.

The facilitation can take place over an online platform (example: Amazon or Etsy websites) or a physical platform (example: an art studio where independent artists have their works on display for sale). Essentially, the marketplace facilitator steps into the shoes of the third-party retailer for sales tax collection, remittance and audit purposes. There can be limited exceptions where states may allow the third-party sellers to report and remit sales taxes instead of the marketplace facilitator.

Third-party sellers, whose only sales into the state are those made through a marketplace facilitator, will likely not have any sales tax collection and filing requirement. However, if they also make direct sales, then states vary regarding whether they have to include the marketplace facilitated sales to determine if they have nexus and are required to collect sales taxes on their direct sales. For more details on the state marketplace facilitator rules and how third-party marketplace sellers are impacted by these rules, please refer to two charts provided by the Streamlined Sales Tax organization: and

In the second part of this article series, we will examine business entity level taxes and other state nexus related updates. Please reach out to your Sikich representative or contact Brian Kelley with any questions or to discuss the state tax nexus matters addressed above.


(1) Please refer to our original article for more details on the Wayfair case. Note that, technically, the tax that is at issue is a state’s use tax. However, for purposes of this article, we will refer to such taxes as sales taxes. This will aid in avoiding confusion, as both taxes most often use the same tax base and rates, and we are focusing on taxes that need to be collected by sellers (more commonly thought of as sales taxes) versus self-assessing tax on purchases (more commonly thought of as use taxes).

(2) States have consistently taken the position that physical presence still creates nexus, even if the economic nexus thresholds are not met. Though the U.S. Supreme Court in Wayfair held that having a physical presence standard for requiring a sales tax collection responsibility was not constitutional, it did not hold that having a physical presence could no longer be used by a state to assert nexus.

(3) Please refer to the Streamlined Sales Tax organization’s chart that provides more specific details on all of the state’s Wayfair economic nexus threshold. Remember that physical presence still creates nexus even if the economic nexus thresholds are not met:


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