WHAT IS THE WAYFAIR DECISION?
South Dakota vs Wayfair was a case determining state sales tax liability via an economic nexus versus a physical presence standard that was previously used. The case went to the Supreme Court, who ruled in favor of the nexus standard in Summer 2018. So if this decision occurred last year, why are we talking about it now? Well as we’ll discuss further on, although this specific decision came about in a case for South Dakota, it opens the door for other states to follow suit.
WHAT IS AN ECONOMIC NEXUS?
An economic nexus is a connection to a jurisdiction. Previously states only collected sales tax on transactions where the seller had a physical presence within that state, versus those who are located out of state but sell to customers within the state. By establishing a nexus as the new standard, the Wayfair Decision now allows states to require businesses to collect sales tax on those inter-state transactions. This applies to tangible, physical goods, goods delivered electronically, and services.
DOES THE DECISION APPLY TO ONLINE BUSINESSES ONLY?
No. Despite being billed as an “Internet Sales Tax,” the decision applies to all companies selling goods or services in states where they do not have a physical presence.
DOES THE DECISION APPLY TO EVERY STATE?
Yes and no. The decision was specific to a case between the state of South Dakota and Wayfair, but since it was decided at the Supreme Court, it removes the restriction from all states, which can now choose whether to enact a nexus standard or not.
Since the decision, 30 states have done so, but that number is continuing to increase, which is why it continues to be crucial to stay on top of the latest developments in each state. And each state has different rules and thresholds for determining when sales tax should be assessed and remitted.
HOW DOES THIS IMPACT BUSINESS AVIATION?
Just like many other industries, business aviation sees products and services sold across state lines on a daily basis, from trip planning services to aircraft sales, and beyond. Aviation companies will be held to the same standard in states that have adopted a nexus model. Each state’s requirements vary, with some imposing economic thresholds for total sales and other criteria to determine if and how much sales tax should be applied. As each new state adopts this model, enforcement will ramp up in tandem. The burden falls to the seller to collect and remit taxes, so it’s incumbent upon those businesses to make sure they’re in compliance, so as not to be left holding the bag on fees due.