If you have ecommerce or retail clients doing business out of state, you’ve likely kept track of the Quill Corp. case and its impact, but now that the Supreme Court has agreed to consider it what’s next?
To review, the Supreme Court on Friday Jan. 12 agreed to consider a case that has the potential to change how states can tax sales by ecommerce merchants and other out-of-state sellers.
The case, South Dakota v. Wayfair, Inc., challenges the high court’s decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). Upholding an earlier decision, Quill reaffirmed that a state could only require a business with a physical presence in the state to collect and remit sales tax. Businesses lacking that physical presence could not be required to collect or remit the tax.
That was before the birth of ecommerce. Sales tax experts from Avalara, Gail Cole and Scott Peterson, weigh in below.
Cole: It depends. If the court decides in favor of South Dakota, it would pave the way for all states to tax remote sales. Exactly how they would do that is, at this point, unclear; it would depend on the decision.
If the court decides in favor of Wayfair, Inc., the issue would remain unresolved. Another state would likely step forward to challenge Quill, most likely Wyoming, Indiana, or Tennessee, which all have cases in the pipeline. And Congress would likely face increased pressure to deal with the issue.
Congress has toyed with the issue of untaxed remote sales for years. In 2013, the Senate approved the Marketplace Fairness Act (MFA) of 2013, which sought to grant states with simplified sales tax laws the right to tax certain remote sales. However, the measure was held in the House Judiciary Committee. Later iterations of the MFA and at least two versions of a similar measure, the Remote Transactions Parity Act, have never made it to the floor of the full House.
Retailers who sell into multiple states but don’t currently collect and remit tax wherever they sell should monitor this case closely.
Peterson: Even if the Court agrees with South Dakota they are not likely to just overturn Quill; they almost certainly will replace the current physical presence standard with something else. To do otherwise lets states do whatever they want and states will quickly expand that to include other taxes and non-tax regulations.
Once states started taking those actions Congress would have little choice but to intervene and that could be very bad for states. The simplest thing for the Court would be to say that South Dakota’s law doesn’t impose an undue burden on interstate commerce. If they said nothing else other states would have to decide if adopting the same law would give them the same authority.
Of course, we could all be wrong on the reason why the Court took the case. Perhaps the justices other than Kennedy agreed to hear the case because they are tired of states thinking the court system is the way to resolve this issue.
Perhaps the Court will definitively state that it is Congress and Congress alone that must act.