Before a state can require a company to collect and remit sales tax, the company must have a “nexus”: the minimum level of connection a company must have with a state. Pre-Wayfair, a company needed to have a physical presence in the state, such as through an office, warehouse, or employees travelling to meet customers, for a nexus to be established.
Now, physical presence is not the only standard that determines whether a company is required to register and collect sales tax. Additional standards for establishing sales tax nexus now include either minimum gross sales, or a minimum number of sales transactions, with customers in the state. These thresholds vary on a state-by-state basis. Essentially, the Wayfair decision has given all states greater powers to impose sales tax responsibilities on companies that do business virtually.
Let’s say you own a SaaS company that’s based in Canada, and only transact with US clients remotely. Before the Wayfair decision, as long as your SaaS company did not have physical presence in a given state, you wouldn’t have been required to collect and remit US sales taxes. Now, your sales tax responsibilities in each state all come down to your sales numbers, and it’s at the discretion of state thresholds whether or not you’re accountable.
Canadian ecommerce platforms and SaaS vendors are among the many types of businesses dealing with US customers that could establish sales tax nexus in US states as a result of the Wayfair decision. These Canadian businesses could now face US sales tax registration, collection, and remittance responsibilities, as well as compliance requirements under state law.