The Pandemic's Effect on Sales Tax Post-Wayfair: Expect even more uncertainty going forward.

• Author: Yesnowitz, Jamie
• Position: Cover story

The COVID-19 pandemic has wrought disruption and change in practically every area in which we operate, and its effects on the sales tax environment are no different. What is particularly interesting about the operation of the sales tax is that states and businesses are still grappling with the groundbreaking developments resulting from the US Supreme Court's decision in South Dakota v. Wayfair in June 2018. The interplay between changes in how consumers purchase goods and services during the pandemic and the states' ongoing reaction to Wayfair make this a particularly challenging time for businesses to determine how to comply with new sales tax obligations. This article examines how shifts in economic behavior during the pandemic have complicated sales tax legislation developed in response to Wayfair, leading to more uncertainty in how the states tackle sales tax issues in a post-pandemic, post-Wayfair world.

Changes in Economic Behavior During the pandemic

Pandemic-induced changes in economic demand have caused consumers to reconsider in-person purchases and instead to use e-commerce to complete transactions. For example, in the past year, trips to brick-and-mortar stores within malls for in-person sales transactions have been either impossible, impractical, or, at the very least, largely discouraged. Although the economic carnage resulting from the pandemic assuredly led consumers to eliminate many discretionary purchases they otherwise would have made at a mall (not to mention the loss of many businesses themselves that depended on these purchases), consumers quickly became adept at shifting their economic behavior. Instead of the ad hoc mall run, they surfed the internet, found the best deal after searching through various websites and coupon codes, and, with an assist from a delivery company, received their items without having to step outside their homes.

The resultant increase in remote sales through vendors, often with the help of marketplace facilitators, has led to two intriguing revelations. First, the advent of Wayfair-style legislation requiring remote sellers and marketplace facilitators to collect and remit sales tax came at a particularly critical time for the states, given the revenue gaps states now face in light of the pandemic. The relative stability of the sales tax during the pandemic stands in contrast to volatile income and property tax regimes, which in many sectors are showing historic weakness. Second, in the pandemic environment, the annual economic and transactional thresholds requiring action by remote sellers and marketplace facilitators are becoming easier to attain, given the additional online activity of consumers changing their economic behavior.

Continuing Sales Tax Compliance Burdens

Whereas business conditions have remained tenable for companies that managed to pivot during the pandemic and accommodate customers through expanded offerings, more convenient delivery, and electronic and other services, the sales tax compliance challenges that these companies faced before the pandemic still exist. Figuring out how to determine whether a particular product is taxable or not in multiple states can be difficult, especially if the product is considered a mixed transaction in which taxable tangible personal property and an exempt service are provided at the same time. Likewise, determining the taxability of new revenue streams related to the pandemic, including pandemic-related products and surcharges, adds to the vendor's risk of over- or under-collecting sales tax on these transactions. Furthermore...