What the Wayfair Decision Means for Your Small Business
In 2018, the U.S. Supreme Court issued a landmark ruling in South Dakota v. Wayfair, Inc., which significantly altered how states administer business taxes. Before this case, if your business didn’t have a physical presence in a state, like an office, employees, or property, you generally didn’t have to worry about collecting or paying sales tax there.
That all changed with the Wayfair decision. Now, states can require businesses to collect and pay sales tax even if they don’t have a physical presence; just selling to customers in that state can be enough. And the effects don’t stop at sales tax; this decision has rippled out to income taxes, franchise taxes, gross receipts taxes, and more.
If you sell across state lines (especially online), here’s what you need to know.
Key Takeaways
Sales tax now applies beyond physical presence. If you cross certain thresholds in another state, you may need to collect and remit sales tax even without an office there.
More than just sales tax is at stake. Income, franchise, and gross receipts taxes can also apply once you have “economic nexus” in a state.
Compliance is critical for growth. Staying ahead of multi-state tax rules protects your business value during audits, financing, or a future sale.
The Big Change: Sales Tax Rules Got Tougher
The first and most significant impact of Wayfair was the introduction of sales tax. Every state that charges sales tax now has what’s called “economic nexus” rules.
That means if your business makes over a certain amount of sales in a state (usually $100,000 in sales or 200 transactions), you’re required to register, collect, and send in sales tax, even if you’ve never set foot in that state.
This rule doesn’t just hit retailers. Wholesalers are pulled in, too. Some states require wholesalers to register and file tax returns, even if they don’t sell taxable goods. If you don’t collect proper resale certificates from your buyers, the state can hit you with sales tax during an audit. For many small businesses, this means higher compliance costs and, often, investing in software to keep track of it all.
It Doesn’t Stop at Sales Tax
Although Wayfair was about sales tax, states are now applying the same logic to income tax.
In states like California, Massachusetts, and New York, if your business earns enough money from customers there, you may have to pay that state’s income tax even if you don’t have employees, offices, or property there. This is especially tricky for service-based businesses and software companies that can easily sell nationwide without being physically present anywhere.
Franchise and Annual Filing Fees
On top of sales and income tax, some states charge businesses just for doing business there.
Examples:
- Ohio: Applies if your receipts are over $6M (raised from $3M in 2024).
- Oregon: Kicks in at $1M in sales.
- Washington: Business & occupation (B&O) tax applies to most business activity.
- Nevada: Commerce tax if revenue exceeds $4M.
Because these rules don’t depend on profit, many business owners don’t discover the obligation until an audit or when selling the business.
Why This Matters for Mergers, Financing, or Selling Your Business
If you ever want to sell your business, bring in investors, or get financing, your tax compliance will be scrutinized.
Buyers and lenders now want to see if you’ve been keeping up with sales, income, franchise, and gross receipts tax rules in every state where you do business. If you haven’t, it can reduce your valuation or even kill a deal.
Final Thoughts
The Wayfair decision changed the game. Less than 10 years later, economic nexus is the standard across nearly all state taxes.
For small businesses, that means:
- You can’t just rely on where you’re physically located to determine your tax obligations.
- You need to track where your customers are and how much you sell in each state.
- You should strongly consider automating compliance and working with a tax pro to avoid surprises.
States are constantly updating and tightening their rules. Staying ahead means being proactive and prepared. With the right planning and tools, you can remain compliant, avoid penalties, and keep growing without getting tripped up by unexpected tax bills.