Kill Quill: What’s the fallout for sellers if states succeed?
States solve problems. That’s the opinion expressed in the National Governors Association’s (NGA) fourth annual State of the States address. A core problem for states in 2016 is remote sales tax. If they solve it, a core problem for many businesses will be sales and use tax compliance in multiple jurisdictions.
In the address, Virginia Governor Terry McAuliffe (D) spoke of the “longtime, state-driven effort to level the playing field for all retailers by allowing states to collect sales taxes on remote sales.” He further stated that “Governors, legislators, county officials, mayors and city councils have joined with retailers” to continue to work toward a solution at the federal level. But, since Congress has yet to pass legislation through both houses, “alternative solutions at the state level” must be pursued.
NGA is not working in isolation. The National Conference of State Legislatures (NCSL) echoed the need to solve the remote sales tax problem during a January 8 Executive Committee Task Force on State and Local Taxation, which touched on:
- Remote sales tax collection in Congress
- Is Quill dead? If not, can states kill it?
- State efforts to collect sales taxes (on remote purchases)
In 2016, governors and state legislators will join efforts to solve their remote sales tax revenue problem — to kill Quill, so to speak. One solution is to establish nexus (a sales or use tax collection requirement), which could create compliance problems for many businesses.
How did we get here? Looking back at Bellas Hess and Quill
The nation’s current policy towards Internet sales tax is largely based on the Commerce Clause and two Supreme Court decisions:
- National Bellas Hess, Inc. v. Dept. of Revenue of Illinois (1967)
- Quill Corp. v. North Dakota (1992)
In Bellas Hess, the Court ruled that the Commerce Clause prevents states from requiring a business to collect use tax if the business does not have a physical presence in the state. In Quill, the Court affirmed the decision in Bellas that vendors with no physical presence in a State lacked the substantial nexus to impose tax collection duties under the Commerce Clause. However, the Court admitted in the ruling, “The underlying issue here is one that Congress may be better qualified to resolve and one that it has the ultimate power to resolve.” To date, Congress has not resolved the issue.
Reevaluating the rules
The need to reevaluate Bellas Hess and Quill was voiced last spring by Supreme Court Justice Anthony Kennedy. He wrote in a concurring opinion in Direct Marketing Association v. Brohl that the Court should have reevaluated Bellas Hess when it decided Quill, “in view of the dramatic technological and social changes that had taken place in our increasingly interconnected economy.” (And that was in 1992, before the birth of Amazon or eBay.)
“Today buyers have almost instant access to most retailers via cell phones, tablets, and laptops,” continued Kennedy. “As a result, a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the term. Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill.”
Both the NGA and the NCSL are answering Justice Kennedy’s call to challenge Quill. Both are still working toward a solution at the federal level, such as the enactment of the Marketplace Fairness Act. But both are also encouraging states to pursue alternative solutions. To that end, lawmakers are reportedly working together to develop strategies to help states require more sales tax collections from remote sellers. In other words, they’re actively encouraging states to enact laws that will enable them to access remote sales tax revenue.
Sellers will need to their own alternative solution
Exactly how states will answer the call to “Kill Quill” remains to be seen. It is possible that some will ignore it. But others need little persuasion to impose a sales tax obligation on businesses that sell to residents via the Internet, catalogs, television or telephone. They need revenue and they’re being given the green light to get it.
Don’t let the states’ plan to solve their problems create more problems for you. Instead, get ahead of any changes in remote selling nexus requirements by implementing your own alternative solution: sales tax automation. Not sure how sales tax nexus laws impact you? Take Avalara’s short nexus survey to find out.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
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