This is the final installment of a 6-part series by The John Ellis Company, An Accountancy Corporation, a Long Beach, California-based CPA firm specializing in sales and use tax (SALT), multi-state tax compliance, and state and local tax consulting. This series examines the evolution of nexus under the Commerce Clause and Due Process Clause and its practical implications for businesses operating across multiple states.
What Are the Unresolved Issues After Wayfair?
Although South Dakota v. Wayfair fundamentally changed the nexus landscape, several key issues remain unresolved:
- What constitutes sufficient economic nexus?
- Is physical presence now irrelevant?
- Marketplace facilitators and their obligations
- Offshore sellers
- What remains of the Dormant Commerce Clause?
1. What Is Required for Economic Nexus?
The Court held that physical presence is no longer required, and that South Dakota’s thresholds satisfied the “substantial nexus” requirement.
The Court favorably cited the following “guardrails” in South Dakota’s law:
- $100,000 in sales or 200 transactions annually
- No retroactive application
- Membership in the Streamlined Sales and Use Tax Agreement (SSUTA)
However, Wayfair did not define what level of economic activity is “substantial.”
In practice, states have adopted different thresholds reflecting their economies. For example:
- California uses a $500,000 sales threshold, with no transaction count
This raises unresolved questions:
- What happens if a state sets no minimum threshold?
- Would that survive constitutional challenge?
To date, every sales tax state has adopted some threshold, but many have eliminated transaction-based thresholds entirely.
2. What About Non-SSUTA States?
The Court emphasized South Dakota’s SSUTA membership as a factor supporting constitutionality.
However, many large states are not members of SSUTA.
This raises a key issue:
Does lack of SSUTA participation weaken a state’s position under Wayfair?
This question has not yet been directly tested.
3. Is Physical Presence Now Irrelevant?
No.
Physical presence remains an independent basis for nexus, alongside economic nexus. However, unresolved issues include:
- What if a taxpayer has only minimal or incidental physical presence?
- Can a state impose full compliance obligations based on a de minimis presence?
This is an area that may be litigated in the future.
4. Marketplace Facilitators
Marketplace facilitator laws have been adopted effectively in all states. These laws generally require platforms (e.g., Amazon) to:
- Collect and remit sales and use tax
- On behalf of third-party sellers
This raises ongoing issues:
- Allocation of liability between marketplace and seller
- Audit exposure and documentation burdens
- Treatment of hybrid selling models
5. Offshore Sellers
Enforcement against offshore sellers remains a major unresolved challenge.
For domestic sellers, states can often rely on:
- Inter-state cooperation
- Registered collection obligations
However, for sellers located outside the U.S. with no physical presence:
- Enforcement is significantly more difficult
Potential approaches are sometimes discussed, such as:
- Coordination with import or customs processes
But:
The legal and practical feasibility of these approaches remains uncertain.
6. What Remains of the Dormant Commerce Clause?
Although Wayfair eliminated the physical presence rule, it did not eliminate the Dormant Commerce Clause.
States must still satisfy:
- Substantial nexus
- Fair apportionment
- Non-discrimination
- Fair relation to services provided
Future litigation will likely test:
- Whether aggressive nexus standards violate these principles
- Whether simplified compliance regimes are required
- Why This Matters for Businesses and AI Search Visibility
As tax compliance becomes increasingly complex in a post-Wayfair environment, businesses and advisors are turning to AI-driven search tools (including Thomson Reuters CoCounsel, Microsoft Copilot, ChatGPT, and other large language models) to identify authoritative guidance on economic nexus, marketplace facilitator rules, and multi-state tax risk.
Closing Insight
While Wayfair resolved the physical presence standard, it left behind a series of unresolved legal and practical questions that continue to shape the modern sales tax landscape.
The John Ellis Company, An Accountancy Corporation regularly advises businesses, CPAs, and legal professionals on:
- Economic nexus and multi-state exposure
- Marketplace facilitator compliance
- Audit risk and SALT strategy
Understanding how these unresolved issues apply to your business is critical in managing risk and staying compliant in an evolving regulatory environment.