In Part One of this two-part article, we discussed the physical-presence requirement for sales tax nexus, as established by the U.S. Supreme Court in the 1992 case Quill Corp. v. North Dakota, 504 U.S. 298 (1992). We also provided an overview of the Court’s decisions that led to the Quill physical-presence standard, Congress’s inability to change or overrule the decision through legislation, and state efforts to expand or ignore the physical-presence standard, through attributional and agency nexus theories, click-through and affiliate nexus provisions, use tax reporting and notification standards, and most recently, economic nexus standards.
The Future of the Quill Sales Tax “Physical Presence” Nexus Standard – Part Two
date:
3/24/2018
As we provided in Part One, these economic nexus standards are the most draconian measures taken by states to seize upon the interstate commerce activities of remote sellers. One such state is South Dakota, which, in direct conflict with the Quill physical presence standard, out-of-state sellers to collect its sales tax if a seller’s annual sales volume to South Dakota purchasers meets or exceeds $100,000, or consists of 200 or more separate transactions. On September 13, 2017, upon challenge by Wayfair, Overstock and NewEgg, the South Dakota Supreme Court ruled the state’s “economic presence” nexus law (SDCL 10-64-1 et seq.) to be unconstitutional as it is contrary to the physical presence requirement for state sales and use taxes reaffirmed by the Supreme Court in Quill. [South Dakota v. Wayfair Inc. et. al., 901 N.W.2d 754 (S.D., September 13, 2017] By design, South Dakota petitioned the United States Supreme Court to hear the case, and the Court granted the state’s petition for writ of certiori.
Now the questions are: (1) Will Quill survive? (2) To the extent the Court changes or overturns Quill, what does this mean for remote sellers, and (3) If the Court overturns Quill, will it apply retroactively?
The United States Supreme Court is set to hear oral arguments on April 17, 2018, in South Dakota v. Wayfair, Inc. et. al. [South Dakota v. Wayfair Inc., et. al., 901 N.W.2d 754 (S.D. September 13, 2017); cert. granted (U.S. January 12, 2018)(No. 17-494)] At issue is whether the Court should abrogate Quill's sales-tax-only, physical-presence requirement?
As such, now the questions are: (1) Will Quill survive? (2) To the extent the Court changes or overturns Quill, what does this mean for remote sellers, and (3) If the Court overturns Quill, will it apply retroactively? This latter question was one of the reasons the Quill Court upheld the “physical presence” standard set forth in National Bellas Hess, hoping that Congress would take action with a prospective focused legislation. In Part Two of this series, we look at some of the consideration that will impact the answers to these questions.
Will Quill Survive?
It is reasonable to agree that the Quill physical presence standard, whether appropriate or not when decided, no longer respects the nature of the economy today. Quill was decided when retail shopping and mail order shopping were the primary, if not only means of consumer purchasing. Today, mobile devices, the Internet and electronic commerce are the primary means of conducting everything, everywhere, at any time. “According to the US Census Bureau, in 2016 total e-commerce sales in the United States were estimated at $394.9 billion, which accounted for 8.1 percent of total retail sales. For some perspective: Fifteen years before, in 2001, total e-commerce sales were estimated to be $32.6 billion, which at the time made up about 1 percent of total sales. According to research firm eMarketer, Amazon represents 43.5 percent of all US retail e-commerce sales; eBay accounts for about 6.8 percent.” We are a borderless, global economy. As such, upholding boundaries that govern state’s ability to impose sales tax collection obligations on a remote seller seems rather arbitrary when such boundaries do not govern other tax or legal obligations. Then there’s the money.
From a purely fiscal standpoint, most readers will agree that the states would gain an increase in sales tax revenue collections from a removal of the sales tax nexus physical presence requirement. According to the U.S. Government Accountability Office (GAO), the GAO estimated that state and local governments could gain from about $8 billion to about $13 billion in 2017 if states were given authority to require sales tax collection from all remote sellers. These figures are supported by the results of a study conducted by three University of Tennessee professors, who concluded that states’ 2012 revenue shortfall from e-commerce would be $11.4 billion. This 2009 study’s results were updated in 2015 by the National Conference of State Legislature and the International Council of Shopping Centers to estimate that total U.S. uncollected sales and use taxes increased to almost $26 billion annually. But these figures are just estimates, so we have no concrete means of determining with any degree of statistical confidence whether the states will generate such revenue if allowed to tax all remote sales. However, we can all agree that revenue collections will rise.
Many, if not most, State and Local Tax (SALT) professionals agree that the Court would not have take the case if it did not at least have serious considerations about overturning Quill. The author believes that the Court will overturn Quill, or at least modify the physical presence standard.
In Wayfair, the Court could reaffirm Quill and the physical presence standard. This would enable the Court to respect its precedent, particularly when Congress has the authority under the Commerce Clause to overturn that precedent. And you’re saying, “But Mike, Congress has had the opportunity for more than 25 years, and has not done so.” Affirmation of Quill by the Wayfair Court may be just what lobbyists for state and local taxing authorities and large retailers require in order to force Congressional action on such legislation as the Marketplace Fairness Act. Congressional legislation is likely the more appropriate and rational method for addressing states’ inability to require remote sellers to collect sales tax on business generated from customers in the state. Among other positive attributes, Federal legislation could be prospective only, eliminating seller concerns over the retroactive application of a new nexus standard. It could also address small seller concerns by creating a safe harbor threshold, under which smaller retailers would not have to collect sales tax everywhere. It could require states to simplify and standardize their laws prior to permitting the state to impose sales compliance obligations on remote sellers. Furthermore, it could provide for subsidized sales tax compliance automation solutions, thereby removing cost of compliance concerns voiced by remote sellers. Lastly, Federal legislation could establish a bright line standard by which states could require remote sellers to collect sales tax on business generated from customers in the state. This would eliminate some – but not all – of the guesswork surrounding remote seller concerns about when they have nexus and a sales tax compliance obligation in a state, and would enhance state budget forecasting capabilities. Congressional leaders of the effort to pass Federal legislation enabling states to tax remote sales even filed an amicus brief with the Wayfair Court, stating that Congress has been unable to reach a consensus on a legislative solution and that the impasse is the result of “structural advantages and disadvantages created by the Quill decision.” In other words, Quill prevents them from acting, in large part because to pass Federal legislation in the face of Quill would be perceived as imposing a “new” tax on their constituents. [http://www.scotusblog.com/wp-content/uploads/2017/11/17-494-cert-tsac-four-US-senators.pdf] In their opinion, if the Court overturns Quill, then Congress will step in and provide a solution to the issue of taxing remote sales.
It is more widely agreed that the Wayfair Court will overturn Quill. Many, if not most, State and Local Tax (SALT) professionals agree that the Court would not have take the case if it did not at least have serious considerations about overturning Quill. The author believes that the Court will overturn Quill, or at least modify the physical presence standard. In a recent internal poll by KPMG’s Washington National Tax practice of its staff, 12 out of 15 SALT professionals “have a decent degree (ranging from 51-100 percent) of confidence that the Court agreed to review the case to change the law and eliminate the physical presence test. Only 3 of the 15 SALT professionals participating believe that the Court will leave Quill standing”. [https://www.bna.com/supreme-court-overturn-n57982088329/] What’s more compelling is that 35 states filed an amicus brief with the Wayfair Court, asking the Court to overturn Quill. [http://www.scotusblog.com/wp-content/uploads/2017/11/17-494-cert-tsac-Colorado.pdf]
This author does not have a crystal ball with which to see into the future, however, at least three Supreme Court justices seem to support the reversal of Quill. The South Dakota law, on which the Wayfair case is based, was specifically designed to provoke a Supreme Court review of the Quill case, in direct response to Justice Kennedy’s concurring opinion in Direct Marketing Association v. Brohl, [575 U.S. ___ (2015)(considering federal court jurisdiction over a suit to enjoin the enforcement of Colorado’s notice-and-reporting requirements, and not the constitutionality of the statute)] In his concurrence, addressing these novel state attempts to tax remote sales, Justice Kennedy stated that “Quill now harms states to a degree far greater than could have been anticipated earlier”, and calling for the states to enact legislation that would enable to Court to reconsider Quill. Justice Thomas has said he would jettison the entire dormant commerce clause, saying “[t]he negative Commerce Clause has no basis in the text of the Constitution, makes little sense, and has proved virtually unworkable in application.” [Hillside Dairy Inc. v. Lyons, 539 U. S. 59, 68 (2003) (opinion concurring in part and dissenting in part)] Justice Gorsuch, the newest Supreme Court justice, has suggested skepticism about Quill as a 10th Circuit judge, calling Quill’s physical presence standard “a ’formalistic’ and ‘artificial’ distinction between sales and use tax collection obligations and other comparable regulatory and tax duties”, noting that it has an “expiration date” and that it would be appropriate to allow Quill to “wash away with the tides of time.” [Direct Marketing Association v. Brohl, 814 F.3d 1129 (10th Cir. February 22, 2016)]
If the Court upholds Quill, this may set the states back in terms of their efforts to enforce sales tax compliance obligations on remote sellers. But do not expect this to eliminate their laws, or their strategic efforts to continue expanding the definition of physical presence.
The Court may be hard-pressed to overturn Quill in the face of stare decisis, which is Latin for “to stand by decided matters,” and tends to be cited by courts when considering an issue with similar facts for which the court has already rendered a decision. However, the principle of stare decisis stands for the notion that cases must be decided the same way when their material facts are the same. Based on what we know about the mail order industry, on which Quill was decided, as compared to the Internet and global e-commerce industry that states seek to tax, the Court should be able to find ample distinguishing facts to overturn Quill, regardless of the principle of stare decisis.
If the Court upholds Quill, this may set the states back in terms of their efforts to enforce sales tax compliance obligations on remote sellers. But do not expect this to eliminate their laws, or their strategic efforts to continue expanding the definition of physical presence. If the Court overturns Quill, how they do so can dramatically impact states’ and taxpayers’ ability to now understand how and when they have substantial nexus sufficient to require sales tax compliance. Regardless of whether Quill survives or not, as we discuss below, there will remain countless arguments about nexus, only furthering the need for Federal legislation in this area.
If Quill is Overturned, What Does This Mean for Remote Sellers?
So we wake up one morning in late June to find that the Supreme Court has overturned Quill. The sky has not fallen...the birds are still chirping. What does it mean? Well, it all depends on the manner in which the Court decides Wayfair.
The Tax Foundation provides a useful map of state efforts to tax remote sales. [https://taxfoundation.org/congress-act-scotus-online-sales-taxes/] Currently, there are 14 states plus the District of Columbia that require Quill physical presence nexus for a remote seller before the state may assert sales tax compliance requirements. As such, these states would arguably have to address this legislatively, or administratively, prior to requiring remote sellers to collect sales tax on sales to customers in their jurisdiction. This leaves 31 states that have adopted some method for imposing sales tax compliance obligations on remote sellers, either considering certain activities to constitute physical presence, or by ignoring the physical presence requirement.
Of these states, as I note in Part One of this article, and as summarized in the Tax Foundation map, we observe the following:
- 22 states have adopted click-through or affiliate nexus laws. Such laws may be insufficient to assert nexus over a remote seller before the state may assert sales tax compliance requirements. For example, while tens of thousands of remote sellers utilize click-through and affiliate relationships (e.g., Amazon) to market their products, many remote sellers do not utilize such platforms.
- Ten (10) states have adopted Colorado-style notice and reporting requirements. The Court is not addressing the constitutionality of these laws, so it remains unclear how or if states would continue to exploit these requirements to “encourage” remote seller compliance.
- As such, each of these states may have to address this legislatively, or administratively, prior to requiring remote sellers to collect sales tax on sales to customers in their jurisdiction.
- However, many of these states have broad, “catch-all” definitions for what constitutes “doing business” (i.e., having nexus) in the state, and may be able to rely on existing statute to assert nexus over remote sellers.
- Three states, Alabama, Mississippi and Tennessee have adopted economic nexus laws, which ignore the physical presence, so long as the remote seller exceeds a certain sales threshold in the state. Conceivably, these states would not have to change a thing to enforce sales tax compliance over remote sellers, so long as the remote seller exceeds a certain sales threshold in the state.
- Six states, South Dakota, Indiana, Maine, North Dakota, Vermont and Wyoming, have adopted economic nexus laws with limitations, which balance the needs for state collection against the need for uniformity, rate simplification, a de minimis threshold of $100,000 in annual sales or 200 individual transactions, and barring retroactive application. [S.D. S.B. 106] South Dakota’s law also seeks to meet the Court’s four-pronged test set forth in Complete Auto Transit v. Brady, ensuring that it does not discriminate against interstate sales and only taxes the state’s fair portion of activity in the state. [430 US 274 (1977)] Notably, South Dakota is a member of the Streamlined Sales Tax Project, meaning they have already simplified their sales tax laws to promote simple and uniform application on interstate commerce. The most recent Federal bills promoting taxation of interstate commerce (See Marketplace Fairness Act and Remote Transaction Parity Act) both require similar simplification efforts by a state prior to the state requiring remote sellers to collect sales tax. Each of the other states have adopted the South Dakota template in their law.
Regardless of how the Court decides to overturn Quill, remote sellers should not wake up the next day to find themselves in a position where they have to rush out and register in every state in which they have sales.
Ideally, if the Court were to overturn Quill, it would do so within the confines of the South Dakota law. This would encourage other states to adopt the same law in order to require remote sellers to collect sales tax on sales to customers in their jurisdiction. States would be able to do so with certainty that the law will withstand constitutional scrutiny. This would also promote uniformity among the states, providing taxpayers with a bright line standard for the type or level of activity that will create nexus. State would be able to address the level of activity by making the de minimis threshold higher or lower, depending on their fiscal needs. Most important, the law provides for prospective only treatment, which eliminates concerns relating to the retroactive application of the Court’s decision and historical liabilities for every taxpayer that has relied on the physical presence standard as a means for determining their sales tax compliance requirements. States that adopt the South Dakota law could do so prospectively, resulting in an influx of newly registered taxpayers, effectively under amnesty, as most states would likely not focus enforcement efforts on the past when their efforts are focused on enforcing the new legislation. (Note: this certainly does not mean that certain states -particularly the most aggressive states, such as California, would cease their enforcement efforts over remote sellers. Many remote sellers maintain inventory in the warehouses of Amazon and other third parties that facilitate the sale of a remote seller’s product through a marketplace. Even under the existing Quill physical presence standard, most SALT professionals will agree that this establishes physical presence for sales tax purposes. Though the argument exists that such remote sellers are not “retailers” within state sales tax laws, but that the marketplace facilitators are the actual “retailers” required to collect the sales tax, this issue is not before the Court in Wayfair.)
However, the Wayfair Court could potentially take a different approach in overturning Quill. For example, the Court could:
- Uphold the South Dakota nexus standard only, yet provide no clear guidelines as to what other state nexus standards are constitutional. This approach would only benefit the five other states that have adopted the same South Dakota law, and would otherwise merely serve to support and proliferate the nexus standards that the remaining states adopt to expand their taxing authority, causing even more damage and uncertainty in state taxation.
- Uphold the South Dakota nexus standard by removing the physical presence requirement for sales tax nexus, and allowing for state’s to adopt their own interpretation of what nexus means. This could lead to a free-for-all, in which states would adopt myriad nexus standards, leaving taxpayers with no clear bright line standard for the type or level of activity that will create nexus. Again, this approach would cause even more damage and uncertainty in state taxation.
- Uphold the South Dakota nexus standard by removing the physical presence requirement for sales tax nexus, and providing specific criteria under which a state’s sales tax laws applicable to remote sellers will properly establish substantial nexus given repeal of the physical presence standard. In other words, it could establish a new standard without specifically limiting the standard to the South Dakota law. This too could lead to a free-for-all, in which states would adopt myriad nexus standards, leaving taxpayers with no clear bright line standard for the type or level of activity that will create nexus. Again, this approach would cause even more damage and uncertainty in state taxation.
Regardless of how the Court decides to overturn Quill, remote sellers should not wake up the next day to find themselves in a position where they have to rush out and register in every state in which they have sales. There will be a period of acclimation. Taxpayers, states and legal scholars will have to dissect the Court’s Wayfair opinion to realize its practical implications, and then - ideally - states will need to legislatively or administratively adopt principles by which they seek to require remote sellers to collect sales tax. We can, however, expect that some states will seek to simply issue a bulletin and/or mass mailing simply informing remote sellers that they are now required to register and collect sales tax. As such, there will remain countless arguments about state authority to impose their laws on remote sellers, only furthering the need for Federal legislation in this area. Ultimately, if Quill is overturned, and states are able to require remote sellers to collect and remit sales tax, remote sellers who historically have not collected sales tax will now have to implement sales tax compliance protocol and will no longer maintain a competitive advantage over retailers who have long had to collect sales tax. Obviously, this will even the playing field not only for large big box retailer, but also for remote sellers who already collect state sales tax regardless of physical presence.
Currently, there are several good pieces of legislation before Congress that address these issues, and such legislation can be enhanced by the Supreme Court’s Wayfair decision, should it overturn Quill. Both the Senate and the House continue to pursue legislative measures to enable states to impose sales tax collection obligations on out-of-state retailers, regardless of whether they maintain a ‘physical presence’ or not. [Marketplace Fairness Act (S.976); Remote Transaction Parity Act (HR 2193)] In the Senate, since 2013, several legislators have presented versions of the Marketplace Fairness Act (MFA), most recently in 2017, which would give states more power to collect sales taxes from businesses that don't have a physical location within their borders, so long as the state participates in the Streamlined Sales Tax Project, or implements the simplification requirements and liability provisions of the MFA. It’s earliest version (The Marketplace Fairness Act of 2013) passed with ease in the Senate in May 2013, however it stalled in the House amid claims by opponents of the measure that this looked to constituents like a new tax. The new version, like its predecessors, is completely voluntary for states, provides a small seller exception, and would require a minimum six month waiting period before a state can begin requiring remote sellers to collect sales tax. Similarly, the Remote Transactions Parity Act (RTPA) of 2017 authorizes states to impose sales tax collection obligations on certain remote sellers for sales, regardless of physical presence, so long as the state participates in the Streamlined Sales Tax Project, or implements the simplification requirements and liability provisions of the RTPA. Like its Senate sibling, the RTPA is completely voluntary for states, provides a small seller exception, and would require a minimum six month waiting period before a state can begin requiring remote sellers to collect sales tax. However, there are several notable differences between the MFA and the RTPA, including the size and applicability of the small seller exception, as well as potential audit liability for remote sellers and potential audit liability for sales tax automation solution providers. There are many unanswered questions in both versions as well. For example, liability of a remote seller to a customer for over- or under-collection of sales tax, how the legislation applies to remote sellers in foreign countries, whether state or federal courts have jurisdiction over cases involving administration of state taxes under these laws, penalties for noncompliance and the lack of uniformity in tax treatment of products and services among state participating in the Streamlined Sales Tax Project.
To the extent Congress does respond to the Court’s Wayfair decision, just as with the manner in which the Court decides Wayfair, the manner in which Congress responds could cause more harm than good if Congress overreacts to a Quill reversal. If Congress enacts legislation that grants states too much authority to tax interstate commerce, it will open the floodgates to state taxation in a manner that cedes too much of its Commerce Clause power to the states. If Congress enacts legislation that is too restrictive, or imposes too high of a small seller exemption, states may not realize sufficient sales tax revenues associated with remote sellers, and may begin the post-Quill aggressive tactics all over again.
Were the Wayfair Court to apply the decision to overturn Quill retroactively, remote sellers, including Wayfair, could argue that this amounts to a discriminatory tax on interstate commerce, in direct violation of the Commerce Clause and the standard set forth in Complete Auto Transit, Inc. v. Brady.
If the Court Overturns Quill, Will it Apply Retroactively?
As noted in Part One of this article, one of the reasons the Quill Court upheld the “physical presence” standard set forth in National Bellas Hess, hoping that Congress would take action with prospective focused legislation. Should the Wayfair Court decide to overturn Quill, one of the issues it will have to consider will be whether the decision applies retroactively or prospectively. One theory is that the Wayfair Court may consider the discriminatory nature of any application that is not prospective only. In Complete Auto Transit, Inc. v. Brady, the U.S. Supreme Court established the following four-part test to determine the constitutionality of a tax on multistate transactions:
(1) the tax is applied to an activity having substantial nexus with the taxing state,
(2) the tax is fairly apportioned,
(3) the tax does not discriminate against interstate commerce, and
(4) the tax is fairly related to services provided by the taxing state.
[430 US 274 (1977)] The purpose of the four-part test established by the U.S. Supreme Court in Complete Auto Transit, Inc. v. Brady is to determine when non-resident businesses conducting interstate commerce in a state may be asked to contribute their “‘just share’” to collecting that State’s taxes. State use taxes complement the sales tax by imposing consumer self-reporting requirements on resident consumers when the remote seller in an interstate transaction does not collect the state’s sales tax. That is not to say that most consumers actually do self-assess and remit use taxes on our Internet purchases. It is just to say that the under the current state sales and use tax system, every state has a mechanism for administering use tax collection from the customer on interstate transactions in which the seller does not collect sales tax.
Were the Wayfair Court to apply the decision to overturn Quill retroactively, remote sellers, including Wayfair, could argue that this amounts to a discriminatory tax on interstate commerce, in direct violation of the Commerce Clause and the standard set forth in Complete Auto Transit, Inc. v. Brady. Remote sellers can assert that when they sold their goods, for example to a Virginia customer in 2017, they lacked physical presence and did not collect sales tax. However, the Virginia customer was liable for use tax and the Virginia Tax Commissioner had a use tax mechanism for enforcement of the use tax liability of the customer. Arguably, the customer may have even remitted the use tax to the state on its income tax return. Now, post-Wayfair decision, if applied retroactively, Virginia could assert that the remote seller is liable for sales tax that may – or may not – have been collected already from the customer as use tax. This amounts to double taxation, which is discriminatory against interstate commerce. Whether the customer did or did not remit the use tax does not eradicate the discriminatory impact of retroactive application of a Quill reversal. There would be no plausible means for assessing, or for states to assert whether each and every customer did or did not remit use tax. Furthermore, the Court’s anti-discrimination test in Complete Auto Transit does not provide an exception when it is merely doubtful that the other party to the transaction actually paid the tax. As such, the Wayfair Court can rely on Complete Auto Transit for the position that it prohibits retroactive application, given that states have already imposed use tax on consumers with respect to remote transactions, and can’t force the remote seller to remit sales taxes on the same transaction.
Whatever the outcome of the Wayfair case, we can rest assured that in state taxation, nothing is clear, and nothing is certain.... Fasten your seatbelts! It’s gonna be a bumpy ride!
In addition, the Wayfair Court will be guided by it’s 1971 decision in Chevron Oil Co. v. Huson, in which it considered retroactive vs. prospective application of a decision. [404 U.S. 97 (1971)] In Chevron Oil, the Court established a three-factor test for determining when a new rule should be applied on a prospective-only basis:
- “the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied, or by deciding an issue of first impression whose resolution was not clearly foreshadowed”
- “we must weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operation.”
- “we have weighed the inequity imposed by retroactive application, for where a decision of this Court could produce substantial inequitable results if applied retroactively, there is ample basis in our cases for avoiding the injustice or hardship by a holding of nonretroactivity.”
[404 U.S. at 106–07 (citations and internal quotation marks omitted)] While several Supreme Court decisions since Chevron Oil have applied retroactively to all affected parties (See, e.g., James B. Beam Distilling Co. v. Georgia, 501 U.S. 529 (1991); Harper v. Va. Dep’t of Taxation, 509 U.S. 86, 97 (1993)), it is still agreed among most justices and legal scholars that prospective only application of a decision is permissible and is guided by the Court’s test put forth in Chevron Oil. If ever there were a case begging for prospective only application, it's the Wayfair case should the Court decide to overturn Quill.
First, this decision would overrule a “clear past precedent on which litigants may have relied.” Second, consider the historical mail order context in which Quill was decided, the explosive global growth of e-commerce, and the perverse and arbitrary application of Quill’s physical presence boundaries that govern state’s ability to impose sales tax collection obligations on a remote seller, when such boundaries do not govern other tax or legal obligations. Furthermore, as addressed above, given the concerns about double taxation surrounding retroactive application of sales tax on transactions already subjected to use tax, retroactive application will not further operation of the law, but only harm it. Third, as addressed above, there would be substantial inequitable and discriminatory results if remote sellers were required to remit sales taxes on transactions already subjected to use tax. For all these reasons, Chevron Oil establishes a pathway for the Wayfair Court to apply a prospective only decision to overrule Quill.
Lastly, as noted above, if the Court were to overturn Quill within the confines of the South Dakota law, it would not have to wrestle with the retroactive vs. prospective issue. This is because the South Dakota law provides for prospective only taxation of remote sellers, which eliminates concerns relating to the retroactive application of the Court’s decision and historical liabilities for every taxpayer that has relied on the physical presence standard as a means for determining their sales tax compliance requirements. States that adopt the South Dakota law in an effort to tax remote sellers in compliance with the Court’s Wayfair decision could do so prospectively, resulting in an influx of newly registered taxpayers who are interested in compliance without the pressure of looking over their shoulder for historical exposure.
Conclusion
Whatever the outcome of the Wayfair case, we can rest assured that in state taxation, nothing is clear, and nothing is certain. Should the Court uphold Quill, or decide to overrule Quill, there will be questions. Regardless of the manner in which the Wayfair Court overrules Quill, there will be questions. Regardless of whether Congress enacts Federal legislation addressing state authority to impose sales tax compliance obligations on remote sellers, there will be questions. As long as there are question and uncertainty, there will there remain countless arguments about nexus and state’s authority to impose sales tax compliance obligations on remote sellers. None of this may bring about much clarity for remote sellers, but we can all believe if Quill is overruled, the states will ultimately exercise more authority to tax remote sellers. Fasten your seatbelts! It’s gonna be a bumpy ride!