News & Publications
Pennsylvania: Wayfair, Latest Online Retailer to Remit State Sales Tax
Announced May 24, 2017 the United States’ 16th largest online retailer, Wayfair, an American e-commerce company that sells home goods including furniture and décor, has joined the growing list of online retailers who have begun to remit sales tax to states where they do not have a ‘substantial physical presence.’ Nexus is a hot topic of conversation amongst state law makers due to the growing popularity of online retail versus brick and mortar retail establishments.
A generally accepted measurement of retail strength is the holiday season (Thanksgiving-New Year), the busiest time of the year for retailers both online and at physical store locations. The major difference between e-commerce and physical transactions in retail is that since 2010 there has been a substantial decline in foot traffic amongst major retail stores. Between 2010 and 2013 traffic in stores such as Best Buy and Macy’s decreased by half and has gradually continued to fall. An opposite statistic has proven to be the demise of brick and mortar establishments, the increase in online sales having a sustained annual growth rate of 10% and in some situations, such as Amazon, 12-15%. This annual growth has lacerated the profit stream of brick and mortar locations that have been consistently strong for decades forcing major players to reevaluate their business strategy and adapt to changing consumer behavior.
What does this mean for states?
The decline in physical sales within a state means less state sales tax revenue. As a result, states have begun to create ‘modern’ tax approaches. Tennessee amended their interpretation of nexus for companies who attain “…$500,000 in retail sales within the state,” thus, forcing large online retailers to establish nexus within the state to collect and remit state taxes. Tennessee is one of a handful of pioneer states attempting to restructure current regulations to incorporate the online retail industry in their portfolio of tax revenue.
Pennsylvania has individually negotiated with specific companies who have the largest market share in Pennsylvania retail via online transactions. All negotiations thus far have been voluntary, and the state has publically thanked companies for taking the initiative required to benefit both the state government and e-commerce organizations. One can infer that these agreements will be the basis for future online regulation.
The superseding question surrounding online business is where the government (whether it be state or federal) draws the new ‘line in the sand’ about online e-commerce organizations’ nexus eligibility. Wayfair has willingly participated in negotiations with the Commonwealth of Pennsylvania out of good faith to establish a taxable system that levels the playing field for all companies. Notably, current systems are mutually beneficial to the state and organization, since they are not yet required to remit taxes on the state level. E-commerce organizations have elected to begin the process of tax integration foreseeing major tax and regulatory changes to the industry on the way in the near future.
The Wayfair negotiation has been one of the largest to take place between an online company and the state. Recently, Pennsylvania reached an agreement with the online home-sharing company Airbnb to collect the state’s hotel occupancy tax. The broad message sent through these negotiations and the legislative conversation about online taxability is that, once again, the entrepreneur has identified means to operate within the scope of the law while maximizing profit. Sequentially, lawmakers are playing catch-up to regulate the ever-changing industries of business, the latest being online.
Tips for the Taxpayer
Stay up-to-date with state and local tax laws and regulations. If your company operates primarily online be sure to monitor announcements from the Commonwealth regarding further negotiations and how they could apply to your organization in the near future. Research states with changing nexus statutes and consider whether your company should be registered for sales tax in those states if not already. In an audit, the taxpayer will be responsible for the correct tax remittance. Stay current with your state, county, and city legislation. Look for planning opportunities and exemptions that might be applicable to your company.
For More Information
If you are interested in learning more about this topic or other tax topics, please visit our Tax Publications under News and Events at www.allynintl.com.
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