Wayfair’s Impact on Income Tax
The Wayfair ruling changed the world of sales tax. And now states are continuing to respond, but it’s not just about sales taxes anymore.
Texas recently proposed changes to Comptroller Rule 3.586, which applies the ruling in South Dakota v. Wayfair to the nexus requirements for the Texas Margin Tax. The Wayfair decision eliminated the physical presence standard as a requirement to establish nexus for purposes of sales tax. Many states were quick to apply the ruling and modify their own rules to incorporate it into their sales tax nexus rules.
Texas is the first state to apply the Wayfair ruling to something other than sales tax nexus, paving the way for other states including those that impose income taxes to follow suit. The Texas Margin Tax is neither an income tax nor a franchise tax. It is a modified Gross Receipts Tax. Around the same time, Washington announced a similar change to their economic nexus threshold for three Business & Occupation categories to $100,000 of Washington sales.
More states are likely to begin testing the waters to see if they can apply the Wayfair ruling to income tax. It may just be a matter of time before the physical presence requirement for nexus is entirely a thing of the past.
We will keep you updated, however, if you have immediate concerns or questions please contact our SALT Team.