Wayfair and Nexus: The Aftermath, Part 5 – Aggregation and Local Issues

June 25, 2019

To celebrate the one-year anniversary of the Wayfair decision, this article addresses recent guidance from Virginia on its aggregation rules for computing the sales threshold, as well as the potential impact of the decision on local tax jurisdictions.

The one-year anniversary of the Wayfair decision was celebrated on June 21 and during the past year, there has been non-stop activity by state legislatures and revenue departments as they worked to enact and implement sales tax economic nexus rules. At this time, there are only three states (Florida, Kansas and Missouri) that have not enacted some type of sales tax economic nexus provision.

While each of the state’s economic nexus rules are similar in that they establish nexus for an out-of-state seller upon crossing certain sales revenue and/or transaction thresholds (several states don’t use the transaction threshold), there are, of course, differences in the way such rules are interpreted and applied. Some of the ways in which states differ are: (i) determining which sales (e.g., exempt vs. taxable) count toward the threshold; (ii) the measurement period (e.g., prior or current calendar year vs. prior twelve-month period); and (iii) when a company must become compliant once it reaches the threshold (e.g., immediately vs. a grace period). This article highlights two areas of additional differentiation – aggregation and local taxing jurisdictions.


Recently, the Virginia Department of Taxation released draft guidance regarding application of its economic nexus sales tax rules that will take effect on July 1, 2019. The draft guidance will be effective on June 27, 2019 (it is pending comments), and it highlights a feature to Virginia’s rule that is not common among state economic nexus rules.[1] Specifically, Virginia requires that the sales and transactions of commonly controlled entities (as defined in Internal Revenue Code 1563(a) and regardless of the form of organization) be aggregated for purposes of determining if the sales and/or transaction threshold has been exceeded.

Consider the following example: LLC1 and LLC2 are each 100 percent owned by the same parent company. LLC1 and LLC2 do not have physical presence in Virginia. LLC1 has $80,000 of remote sales to Virginia customers and LL2 has $40,000 of remote sales to Virginia customers. Under Virginia’s guidance, both LLC1 and LLC2 have economic nexus and must register to collect and remit Virginia sales tax since combined they exceed the $100,000 sales revenue threshold.

To add further complication, Virginia’s law also establishes economic nexus for entities acting as marketplace facilitators (i.e., those entities that provide a platform for the sale of another entity’s good or service and that provide certain services in connection with such platform), and the aggregation rules take into account sales by an entity as a marketplace facilitator.

Consider the following change in facts to the example above: Assume that LLC1 had $110,000 of sales to Virginia customers, of which $50,000 were direct sales and $60,000 were sales it facilitated as a marketplace facilitator for unrelated sellers. Under those facts, LLC1 would be required to register for sales tax, since LLC1 direct sales, facilitated sales, and the sale of LLC2 are aggregated for purposes of determining if LLC1 has exceeded the sales threshold.

On the other hand, LLC2 does not have to register because LLC1’s facilitated sales do not count for purposes of the affiliate aggregation rules (only direct sales of commonly controlled entities count). Excluding LLC1’s facilitated sales, LLC2 has $40,000 of its direct sales plus $50,000 of LLC1’s direct sales, and the total of $90,000 falls below the required sales threshold.

Local Jurisdictions

Another area where Wayfair activity is creating complexity and confusion is with regard to the rules for local jurisdictions. It is often the case that that once nexus (physical or economic) is created in the state, the seller is responsible for collecting the combined state/local sales tax rate based on the specific address where the good or service is delivered. However, there are certain states that allow local jurisdictions, known as “home rule” jurisdictions to establish and administer their own sales/use tax rules, and so the question arises as to how the Wayfair rules should be applied to those jurisdictions.

For example, the City of Boulder, Colorado, is a home rule jurisdiction, and on its website regarding sales tax is the following statement:

Boulder is a locally-collected/administered home-rule city, and as such the state’s new [Wayfair] rules do not apply to the city’s nexus criteria.

The City of Boulder has not amended its code or otherwise changed its physical presence standards.

Currently, the City of Boulder has not followed or otherwise conformed with Colorado’s approach to changing its nexus standards and licensing requirements. However, Boulder and other Colorado home-rule cities are currently in discussions about the implications of Colorado’s emergency rule for home-rule city tax collection by remote sellers.

As states continue to issue guidance explaining the application of their economic nexus rules, further differentiation is possible, which will certainly add complexity for taxpayers trying to understand their compliance obligations. Aprio’s SALT team advises businesses on how these new rules will impact their sales tax reporting requirements. In addition, Aprio can serve as your sales tax compliance outsourced provider so that your business can reduce its sales tax compliance risks and your personnel can focus on activities that add value and contribute to the company’s growth. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Check out all Aprio articles on Wayfair and its aftermath.

Interested in speaking with someone? Contact Jeff Glickman.

This article was featured in the June 2019 SALT Newsletter.

[1] California’s recent economic nexus legislation sets a $500,000 sales threshold for sales made by a retailer and any person related to the retailer. For purposes of determining whether a person is related, the rules under Internal Revenue Code sec. 267(b) apply.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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