The first New York meeting of McDermott’s Tax in the City® initiative in 2018 coincided with the June 21 issuance of the US Supreme Court’s (SCOTUS) highly anticipated Wayfair decision. Just before our meeting, SCOTUS issued its opinion determining that remote sellers that do not have a physical presence in a state can be required to collect sales tax on sales to customers in that state. McDermott SALT partner Diann Smith relayed the decision and its impact on online retailers to a captivated audience. Click here to read McDermott’s insight about the decision.
On Tuesday, April 17, 2018, at 10:00 am (EST) the United States Supreme Court will hear oral arguments in South Dakota v. Wayfair, Inc., a state tax case poised to reconsider the dormant Commerce Clause physical presence standard upheld by the Court on stare decisis grounds in the historic mail-order case Quill Corp. v. North Dakota (U.S. 1992), which was litigated by McDermott Will & Emery. The Court is expected to consider whether a 2016 South Dakota law imposing sales and use tax collection obligations on online retailers–and other sellers–with no physical presence in the state is permissible given, among other things, the advances in technology and e-commerce since Quill was decided.
For those that would like to attend the South Dakota v. Wayfair, Inc. oral argument as a member of the public (as opposed to as a member of the US Supreme Court Bar), the Supreme Court Police give out 100–150 numbered tickets between 7:00 am–7:30 am. The doors to the building open at 8:00 am. Once inside, the line re-forms in the hallway by the Gallery steps and at 9:00 am, the public is allowed upstairs to the Gallery. The argument will begin at 10:00 am. Given the popularity of this case, it is anticipated that only around 50 seats will be available to the general public for this argument—so plan to arrive early to ensure you have the best chance to make it in!
After the oral argument concludes, we invite you to join COST, Bloomberg Tax, McDermott Will & Emery, and lawyers involved in many respects of the litigation for a moderated roundtable discussion at the DC office of McDermott Will & Emery, which is just minutes away from the Supreme Court. The roundtable discussion will begin at 12:00 pm (EST) and explore the issues before the Court and opinions regarding the many possible outcomes from the case.
We expect a full house and space will be limited, so please register your interest now so that we can plan to accommodate as many as possible. This case promises to revolutionize the world of SALT, no matter the outcome.
On October 2, 2017, the State of South Dakota (State) filed its petition for a writ of certiorari with the United States Supreme Court (Court). A copy of the cert petition is available here and the case, South Dakota v. Wayfair, Inc. et al., is expected to be docketed on October 3, 2017. The State is asking the Court to overturn its physical presence standard used to determine whether an entity has substantial nexus under the dormant Commerce Clause. This comes only a few weeks after the South Dakota Supreme Court ruled against the State in favor of the online retailer defendants, citing the Court’s physical presence standard upheld in Quill on stare decisis grounds.
This development comes as no surprise to the state and local tax community, and begins what is likely to be one of the most closely watched cert petitions in years. Going forward, the online retailers have three options: (1) acquiesce that the Court should grant cert; (2) waive their right to file a response to the cert petition; or (3) file a brief in opposition. If the online retailers choose the third option, they will have 30 days from today (if the case is in fact docketed today) to file their brief in opposition. This deadline is subject to extensions, upon request (the first of which is always granted as a matter of right). We expect a number of groups to file amicus curiae briefs regarding this cert petition given the significance of the issue raised. If the online retailers do file a brief in opposition, the State will be given an opportunity to file a reply brief, rebutting the points made by the online retailers and reiterating the arguments made in the State’s cert petition. Unlike the cert petition and the brief in opposition, which must be filed with the Court under strict deadlines, the exact timing of the reply brief varies. As a general rule of thumb, a reply brief is usually filed approximately 10 days after filing of the brief in opposition.
While this dispute is a long way from being heard by the Court on the merits (if at all), the cert petition is a critical first step that will have implications to Congress, the courts, state legislatures, taxpayers, and revenue departments across the country. Stay tuned for more coverage of this cert petition and the developments that follow.
This morning, the US Supreme Court announced that it denied certiorari in Direct Marketing Association v. Brohl, which was on appeal from the US Court of Appeals for the Tenth Circuit. The denied petitions were filed this fall by both the Direct Marketing Association (DMA) and Colorado, with the Colorado cross-petition explicitly asking the Court to broadly reconsider Quill. In light of this, many viewed this case a potential vehicle to judicially overturn the Quill physical presence standard.
Practice Note: Going forward, the Tenth Circuit decision upholding the constitutionality of Colorado’s notice and reporting law stands, and is binding in the Tenth Circuit (which includes Wyoming, Utah, New Mexico, Kansas and Oklahoma as well). While this development puts an end to this particular kill-Quill movement, there are a number of other challenges in the pipeline that continue to move forward.
In particular, the Ohio Supreme Court recently decided that the Ohio Commercial Activity Tax, a gross-receipts tax, is not subject to the Quill physical presence standard. A cert petition is expected in this case, and could provide another opportunity for the US Supreme Court to speak on the remote sales tax issue. In addition, litigation is pending in South Dakota and Alabama over economic nexus laws implemented earlier this year. A motion hearing took place before the US District Court for the District of South Dakota last week on whether the Wayfair case should be remanded back to state court. If so, the litigation would be subject to the expedited appeal procedures implemented by SB 106 (2016), and would be fast tracked for US Supreme Court review. Tennessee also recently adopted a regulation implementing an economic nexus standard for sales and use tax purposes that directly conflicts with Quill that is expected to be implemented (and challenged) in 2017. While Governor Bill Haslam has praised the effort, state legislators have been outspoken against the attempt to circumvent the legislature and impose a new tax. Notably, the Joint Committee on Government Operations still needs to approve the regulation for it to take effect, with the economic nexus regulation included in the rule packet scheduled for review by the committee this Thursday, December 15, 2016.
All this action comes at a time when states are gearing up to begin their 2017 legislative sessions, with many rumored to be preparing South Dakota-style economic nexus legislation for introduction. While DMA is dead as an option, the movement to overturn Quill continues and the next few months are expected to be extremely active in this area. Stay tuned to Inside SALT for the most up-to-date developments.
Earlier today, the Tennessee Department of Revenue (DOR) submitted a new sales and use tax regulation for publication titled “Out-of-State Dealers” (Rule 1320-06-01-.129) that would administratively create an economic nexus threshold. With the submission, Tennessee becomes the most recent addition to the growing list of states seeking to directly attack the Quill physical presence standard. As detailed in our prior blog, both Alabama and South Dakota are already litigating whether their economic nexus standards are sufficient to satisfy the dormant commerce clause substantial nexus requirement. Additionally, at least 11 different bills in eight different states have been introduced in state legislatures so far in 2016. With states continuing to attack Quill from all angles, remote sellers are scrambling to keep up with the increasingly volatile nexus landscape. Continue Reading Breaking News: Tennessee Submits Proposed Economic Nexus Regulation for Publication
As it heads into the final weeks of its session, Congress is considering various bills that would restrict or expand states’ taxing authority. Almost every business in the country would be affected by at least some of these bills. While some of these bills have progressed further than others, any could become law—particularly if bundled into legislation that Congress must, as a practical and political matter, pass before the session ends. Businesses thus have an opportunity to ask their Senators and Representatives to take action to rein in some of the problems with state and local taxes.