September 10, 2019
Digital Sales Tax? The Supreme Court Could Decide Soon
South Dakota’s Attorney General has filed the first of an expected wave of state petitions asking the Supreme Court to reconsider an opinion from 1992, Quill Corp. v. North Dakota, that restricts states’ ability to tax remote retailers. Similar “kill- Quill” lawsuits are pending in the state courts in Alabama, Indiana, Tennessee, and Wyoming.
Quill Corp v. North Dakota has been interpreted as requiring a retailer to have an in-state physical presence (either its own or the physical presence of a representative) before the state can require the remote retailer to collect taxes on sales to in state customers. Obviously, the retail landscape has changed significantly since 1992. Quill severely impedes states’ collection of their taxes on internet sales.
South Dakota believes that federal law is shielding online retailers from paying the same taxes that South Dakota businesses must pay. The Attorney General believes that the Supreme Court needs to level the playing field. He states that “[t]he explosion of omnipresent online retailers and vast technological changes since Quill call for an end to the physical presence requirement. If the U.S. Supreme Court ultimately strikes down Quill, retail sales tax obligations can be applied fairly to both internet and main street businesses”
Even Justices Anthony Kennedy and Neil Gorsuch have indicated it might be time to reconsider Quill.
In the meantime, multiple states have enacted laws or rules that appear eager to revisit Quill. Alabama was the first state to embark on this challenge, promulgating a regulation requires out of state sellers, who lack an in-state physical presence but have a substantial economic presence in the states, to register with the Department of Revenue and remit tax when sales in the state exceed $250,000.
The actions of states like Alabama paved the way for South Dakota, which has made its intentions the clearest out of all. On March 22, 2016, the governor signed legislation requiring all out of state retailers, regardless of their physical presence, to collect and remit sales tax when the retailers generate over $100,000 in revenue from the sale in the state or when the retailers deliver into the state in 200 or more separate transactions. Soon after, online retailers sued and claimed it violated the holding in Quill.
So, what’s next? The Supreme Court will likely make a decision on whether to take up the case as soon as January 2018. However, the online retailers in the case have a 30-day period to file a brief opposing the petition for review. Additionally, the Supreme Court could ask for a brief on the case, which would take an additional 60 days.
According to experts, the best-case scenario would be for the Supreme Court to grant cert, hear the case in the Spring and decide the case in June. Nonetheless, as mentioned above, there is a high probability that a decision regarding the case will be delayed.