How Wayfair Sales Tax Case Affects Benefit Vendors and Their Customers
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Has your company recently received a sales tax invoice from one of your health plan or wellness vendors? While these invoices may be an unpleasant surprise, they likely stem from a 2018 decision by the US Supreme Court, South Dakota v. Wayfair, Inc.
The Wayfair ruling held that state and local sales taxes are not limited to purchases at brick-and-mortar stores (and others with a physical presence in a state or locality). These taxes may also apply to online sales if a vendor has a "substantial nexus" — an economic connection — with the taxing jurisdiction. Taxable sales can include products and services provided by, for example, wellness vendors.
The decision naturally has raised a number of questions for employers, such as whether other jurisdictions can apply Wayfair to tax years before the decision date and whether any particular state or locality currently taxes the sale of certain products or services. Some states, but not all, have laws that ban the retroactive application of their sales tax. Unfortunately, no uniform rule resolves these questions across all jurisdictions.
Companies that receive a sales tax invoice from their vendor should:
- Review the service agreement with the vendor to determine who is legally responsible for paying the tax.
- Scrutinize the invoice to see if it includes pre-Wayfair charges or other charges that may be inapplicable.
- Explore possible exemptions for your company (e.g., for nonprofits, government agencies).
These issues are complicated — the US apparently has more than 10,000 different sales tax jurisdictions! But Mercer can help your company work with vendors in addressing the complexities and planning for future plan years.