How does the Wayfair decision affect foreign-owned LLCs selling online in the U.S.?

Before the 2018 South Dakota v. Wayfair decision, states could only require you to collect sales tax if you had a physical presence (warehouse, office, employees) in that state. This was based on the 1992 Quill v. North Dakota decision.

Wayfair overruled Quill and held that states can require remote sellers to collect sales tax based on economic activity alone — even without physical presence. This means that a foreign-owned LLC selling from outside the U.S. can be required to collect sales tax in any state where its sales exceed that state's economic nexus threshold.

After Wayfair, nearly every state with a sales tax adopted economic nexus thresholds. The most common standard is $100,000 in sales or 200 transactions in a calendar year, but variations exist:

- $100,000 sales or 200 transactions: Most states (Alabama, Arizona, Georgia, Idaho, Indiana, etc.) - $100,000 sales only (no transaction threshold): Many states have been dropping the transaction count - $500,000 sales: California, Texas - $500,000 sales AND 100 transactions: New York - No sales tax: Oregon, Delaware, Montana, New Hampshire, most of Alaska

With $500,000 in annual U.S. sales, you almost certainly exceed the $100,000 threshold in several states. You need a state-by-state sales report to determine exactly which ones.

Since you sell through your own website (not a marketplace), marketplace facilitator laws do not apply. You are responsible for:

1. Determining which states you have nexus in 2. Registering for a sales tax permit in each nexus state 3. Collecting the correct sales tax rate at checkout 4. Filing and remitting sales tax to each state according to their schedule

This is a significant compliance burden. With $500,000 in annual sales, you likely have nexus in 10-20 states or more.

The good news is that automated sales tax software can handle most of this. Services like Avalara, TaxJar, and Vertex integrate with most e-commerce platforms and automate rate calculation, collection, filing, and remittance.

If you have been selling in the U.S. for two years without collecting sales tax, you may have retroactive liability in states where you had nexus. States can audit and assess back taxes, plus penalties and interest.

Many states offer voluntary disclosure agreements (VDAs) that allow businesses to come forward, register, and begin collecting sales tax with limited lookback periods (typically 3-4 years) and reduced or waived penalties. This is generally a better option than waiting to be caught in an audit.

The Multistate Tax Commission (MTC) offers a National Nexus Program that facilitates voluntary disclosure in multiple states simultaneously. This can simplify the process of coming into compliance across many states at once.

Here is a practical roadmap for becoming sales tax compliant:

1. Generate a sales report by state for the past 2-3 years 2. Identify states where you exceed economic nexus thresholds 3. Consider using the MTC National Nexus Program or state-level VDAs for retroactive liability 4. Register for sales tax permits in all nexus states 5. Set up automated sales tax collection through your e-commerce platform 6. Begin collecting and remitting sales tax going forward 7. Continue monitoring sales by state as you grow

The cost of compliance (automated tax software at $50-$300/month, plus potentially a tax professional for initial setup at $1,000-$3,000) is significantly less than the risk of penalties and back taxes from non-compliance.