Digital Taxation Lessons From Wayfair And the U.S. States’ Responses

Digital business models continue to grow, as do the tax challenges they create. Traditional tax nexus concepts have been questioned in the context of both corporate income and consumption taxes. In South Dakota v. Wayfair Inc., 138 S. Ct. 2080 (2018), the U.S. Supreme Court repudiated the traditional physical presence nexus standard for imposing tax collection obligations over remote sellers under the U.S. retail sales tax and replaced it with a standard based on economic and virtual contacts when those contacts are sufficient to avoid undue administrative burdens. The U.S. judicial and legislative experience may prove influential in other countries and contexts despite the differences in countries’ tax systems.

This article examines the lessons that Wayfair might offer for the global debate on taxing the digital economy. It is based on discussions from the latest in a series of “fireside chats” conducted between Jeffrey Owens and leading members of the tax community, held at the WU Institute of Austrian and International Tax Law in December 2018. This article examines proposals for tax reform embracing a virtual presence nexus standard that does not create undue compliance burdens. While recognizing that Wayfair is no panacea for all complex global tax issues, the article considers important parallels between the challenges confronting the U.S. states and OECD and EU members as they relate to the operation of the jurisdictions’ respective tax systems.