Wayfair Impact on Corporate Income Taxes

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Wayfair Impact on Corporate Income Taxes

In the wake of last year’s landmark Supreme Court decision in South Dakota v. Wayfair, Inc., over forty states enacted legislation and/or regulatory procedures to begin collecting sales or use taxes from out-of-state remote sellers.  The impact of the Wayfair decision is now beginning to expand beyond sales or use tax collection obligations.

Pennsylvania recently announced that in 2020, the state will begin collecting corporate income taxes from companies who record more than $500,000 in sales within the state, even if a company does not have offices, employees, or property in Pennsylvania, citing the Wayfair decision as its legal basis to expand how it applies corporate income taxes.  California’s Office of Tax Appeals and Franchise Tax Board recently imposed income taxes on an Arizona individual whose sole business was writing screen plays for California businesses although he performed all of his services outside of the state of California (Blair OTA Case 18032402). Several other states, including Oregon, Hawaii, and Utah, also have bills pending or have already enacted new state corporate income tax rules around the Wayfair decision, which specifically addressed sales and use taxes.

These recent developments are particularly concerning, as they will likely result in other states expanding their corporate and possible individual income tax bases by taking up similar legislation before the end of 2019.  Additionally, due to the constantly changing state tax landscape, many businesses are unaware of their obligations to file in multiple jurisdictions, resulting in the statute of limitations in those jurisdictions never starting, leading to a nearly immeasurable risk of examination liabilities.

Businesses with customers in multiple states should be sure to verify their requirements to comply with each state’s evolving sales tax and income tax laws. Please let us know if you need assistance with determining your potential multi-state reporting requirements or if you have any questions.

Source: Associated Press, October 15, 2019 / Forbes, October 22, 2019