It’s been four years since the Supreme Court’s decision in South Dakota v. Wayfair, Inc. sent shockwaves through the country, and the ripple effects in the time since have upended the way small businesses need to act to remain compliant. In the four years since the June 2018 decision, 45 states, parts of Alaska, and the District of Columbia have adopted economic nexus laws, putting a greater compliance burden on all business sizes, but especially small businesses.
On June 14, the Senate Committee on Finance held a hearing to assess the impact of South Dakota v. Wayfair on small businesses and remote sales. Two small business owners who testified before the committee stressed that in the years since Wayfair, sales tax obligations have been more complicated and expensive. The major theme coming out of the hearing was that compliance is costly and time consuming for small businesses, and greater uniformity among states will help address current issues.
The latest data from Avalara’s Wayfair Decision Tracking Study shows that while awareness of Wayfair laws is high among small businesses, more companies are experiencing greater tax obligations in an increasing number of states, and as a result, are turning to automation to help reduce their growing sales tax compliance burden.
Awareness and confidence is high among small businesses
In the Avalara Wayfair Decision Tracking Study, 74% of small businesses surveyed said that they have implemented the changes needed to comply with Wayfair laws. Four years later, we’re seeing awareness of the Wayfair decision reach the highest levels, but high awareness is accompanied by skyrocketing impact. This rise in awareness and impact is to be expected, as the COVID-19 pushed more businesses online and exponentially grew the number of remote sales happening across the US and around the world.
But when it comes to compliance with Wayfair laws, there is a major sentiment delta between small and large businesses. Most small businesses are confident that they are 100% compliant, while only a third of enterprises respondents answered that they were confident with their compliance obligation. It’s likely that many of the small businesses that believe they are 100% compliant with remote seller laws are using a solution or working with a consultant to offload their tax burden.
While using these tools and resources is exactly what small businesses should be doing for tax, it’s important to note that tax is never a 100% hands-off business function. Change happens all the time, and as the pace of change continues to increase, businesses must stay engaged to understand and navigate the impacts on their business.
Sales are expanding into more states
The data from the study also shows us that more businesses have tax obligations in more states as of late. 54% of businesses started selling into six or more states within the last year, and 85% of businesses selling into six or more states indicated that they’ve been impacted by the Wayfair decision.
This increase in the number of states with growing obligations coincides with the rapid adoption of ecommerce and omnichannel commerce. With many businesses citing that they’ve started selling into six or more new states over the last year, it’s clear that ecommerce growth is playing a huge role in tax complexity for businesses of all sizes. It will be critical to watch how these two trends — omnichannel expansion and tax complexity growth — align as we move forward, as it will pose a big challenge for small businesses.
Small businesses are turning to automation
As a result of significant growth, more businesses are turning to technology to improve compliance. 60% of businesses surveyed indicated that they are using an automated solution to manage Wayfair laws, and 66% of businesses indicated that they are using accounting software for their Wayfair obligations.
The rise in the adoption of automation signals that more businesses are realizing that tax is simply too complex to manage on their own. However, it’s still important for businesses to understand that not all technology is created equal. For example, if a business is using a solution that only handles tax calculation, they still have an obligation to manage the rest of the compliance lifecycle.
The uptick in automation adoption is also due to the fact that businesses are selling through more channels, which requires more systems to manage operations. Omnichannel requires numerous systems to power transactions across multiple channels, and managing tax across multiple sales channels is nearly impossible without an automated solution that can span systems and geographies.
Four years into the Wayfair decision, it’s clear that small businesses are aware of the impacts of new and emerging tax compliance burdens on their business. But with the myriad of sales tax rates and rules constantly changing, and added complexity that comes with omnichannel growth, small businesses can benefit from automating tax calculations to stimulate greater efficiency as they move into new channels and locations.
Liz Armbruester is the SVP of global compliance at Avalara.