A new challenge in Jefferson County Court (Colorado) addresses the unresolved issue of whether the landmark Wayfair1 decision of 2018 should apply to locally administered sales and use taxes. The decision that rejected the physical presence standard for remote sales and use tax collection also approved the bright-line economic nexus standard imposed by South Dakota, as long as the tax did not impose an undue burden on out-of-state taxpayers.
Wayfair, LLC, the online retailer, is now challenging an assessment by the city of Lakewood, Colorado, claiming that by imposing an undue burden on Wayfair, the city is violating the company’s right to engage in interstate commerce. The city neglected to mitigate the challenges imposed by the decentralized sales tax system in place at the time. Wayfair is challenging an assessment for the period from May 2018 to June 2021, before the state began implementing a statewide administration for sales and use taxes.2
The landmark Wayfair decision concluded that the South Dakota tax did not place an undue burden on interstate commerce because it included a safe harbor standard, did not apply retrospectively, and the adoption of the Streamlined Sales and Use Tax Agreement by South Dakota required a statewide administration of the tax. Based on these factors, Wayfair claims that Lakewood neglected the steps necessary to mitigate the burdens imposed by the tax, as required by the Supreme Court ruling. Wayfair is seeking an abatement of $600,000 in sales tax, plus interest in penalties from the city for unconstitutionally violating its right to engage in interstate commerce.
1 South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).
2 It should be noted that although Colorado has offered a centralized sales tax system option to be used by taxpayers, not all localities are participating, with only 43 out of 70 localities opting to participate. Lakewood has not yet opted to utilize the centralized system.
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