Last month, South Dakota petitioned the Supreme Court of the United States to take up a case it hopes will cause the court to reconsider its decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992) — that a state cannot tax a business unless it has a substantial connection to (i.e., physical presence in) that state. Yesterday, the Streamlined Sales Tax Governing Board submitted a brief for amicus curiae to the court, urging it to take on South Dakota’s case.
South Dakota’s unconstitutional law
The case, South Dakota v. Wayfair, Inc., et al., No. 17-494, centers on South Dakota Senate Bill 106, economic nexus legislation created specifically to challenge the physical presence precedent upheld by Quill. It imposes a tax obligation on remote retailers that annually make more than $100,000 in sales of taxable goods or services in South Dakota, or at least 200 separate sales delivered into the state.
The law was challenged by the American Catalog Mailers Association (ACMA) and several internet retailers, including Wayfair, Inc., shortly before it took effect on May 1, 2016. In March of 2017, a state circuit court found it to be unconstitutional. This was exactly the outcome South Dakota wanted.
Streamlined Sales Tax Governing Board urges Supreme Court to take up the case
The Streamlined Sales Tax Governing Board was born for this moment. It was created in 2000 by states looking to “find solutions for the complexity in state sales tax systems that resulted in the U.S. Supreme Court holding [in Bellas Hess and Quill] that a state may not require a seller that does not have a physical presence in the state to collect tax on sales into the state.”
In its brief for amicus curiae, the Governing Board maintains the Streamlined Sales and Use Tax Agreement (SSUTA) that resulted from the Governing Board’s work has “eliminated any undue burden on interstate commerce,” noting that “practical burdens of compliance formed the foundations of Bellas Hess and Quill.” It adds, “When those cases were decided, the thought that retailers in one State could feasibly calculate, collect, and remit sales taxes owing to far-flung jurisdictions was as unthinkable to many as the idea that we would all soon walk around with supercomputers in our pockets.”
These days, the Governing Board argues, those practical considerations “have entirely eroded,” in part because of the work it’s done to simplify and modernize sales and use tax administration. In the 23 full member states:
- All state and local taxes are administered at the state level
- Tax rates are standardized at the state level
- Exemptions are standardized at the state level
- Administrative requirements are standardized across all member states
- Certified service providers are made available to remote sellers at no charge
The Governing Board believes, “the practical realities that explicitly or impliedly justified the physical presence-precedent test no longer apply.” It concludes its amicus curiae by echoing words written by Justice Kennedy in his concurrence in Direct Marketing Ass’n v. Brohl: “It is unwise to delay any longer a reconsideration of the Court’s holding in Quill.”
Other organizations urge Supreme Court to take the case
As of November 17, 2017, 15 groups have submitted amicus curiae briefs in support of South Dakota’s petition for a writ of certiorari. These include the following.
The American Booksellers Association writes that “Quill is an existential threat to independent bookstores” and urges the court to act, “because Congress has not.”
The National Association of Wholesaler-Distributors makes the case that “Quill unfairly harms brick-and-mortar wholesaler-distributors, not just retailers.”
The Retail Litigation Center notes, “the retail economy has transformed since Quill … underscoring the need to reevaluate the physical presence requirement.” It adds, “The court should not expect Congress to correct the constitutional error of Bellas Hess and Quill.”
The Tax Foundation writes, “States are ignoring the Quill decision, and absent this court’s action, this will result in a complex and indefensible patchwork of laws harming interstate commerce.” It adds, “South Dakota’s sales tax law is well-structured and the best vehicle for the court to consider what state actions infringe on interstate commerce.”
Tax law professors and economists argue that “stare decisis exerts a weaker pull when judicial doctrine in the relevant area is based … on changing competitive circumstances.” They point out that the court could not and did not foresee the meteoric rise of online retail, which has magnified the revenue losses that result from the physical presence rule.”
More than 35 attorneys general say that “the States’ collective experience in abiding by Quill demonstrates that no substitute is adequate to replace direct collection by the retailer.” Furthermore, “States are sovereign entities that are constitutionally empowered to require remote retailers to collect use taxes.”
The Multistate Tax Commission (MTC) calls the physical presence standard “unworkable … because a seller’s physical presence has little or no bearing on the relative burdens that tax collection may place on that seller.” Moreover, it “impinges on state sovereignty.” MTC calls the solution embraced by South Dakota a “more workable alternative to the physical presence standard.”
Four senators and two representatives argue that Quill is causing their states to lose revenue and is putting in-state merchants at an economic disadvantage. They say that “declining to re-visit Quill does not make the Court a neutral party in this very contentious matter.”
As of this writing, no organizations have submitted a brief as amicus curiae on behalf of Wayfair, Inc., et al. Find the latest additions in the SCOTUS Blog.
Avalara is a certified service provider of the Streamlined Sales Tax Governing Board. Learn more about its sales tax automation software here.