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BREAKING NEWS: US Supreme Court Overrules Quill

Moments ago, the US Supreme Court issued its highly-anticipated decision in South Dakota v. Wayfair, Inc., et al., No. 17-494. The 5-4 opinion was authored by Justice Kennedy and concluded that the physical presence requirement established by the Court in its 1967 National Bellas Hess decision and reaffirmed in 1992 in Quill is “unsound and incorrect” and that “stare decisis can no longer support the Court’s prohibition of a valid exercise of the States’ sovereign power.” This opinion will have an immediate and significant impact on sales and use tax collection obligations across the country and is something every company and state must immediately and carefully evaluate within the context of existing state and local collection authority.

Summary of Opinions

The majority opinion was authored by Justice Kennedy and was joined by Justices Thomas, Ginsburg, Alito and Gorsuch. In reaching the conclusion that the physical presence rule is an incorrect interpretation of the dormant Commerce Clause, the opinion states that the Quill physical presence rule: (1) is flawed on its own terms because it is not a necessary interpretation of the Complete Auto nexus requirement, creates market distortions and imposes an arbitrary and formalistic standard as opposed to the case-by-case analysis favored by Commerce Clause precedents; (2) is artificial in its entirety and not just at its edges; and (3) is an extraordinary imposition by the Judiciary. The majority went on to conclude that stare decisis can no longer support the Court’s prohibition of a valid exercise of the States’ sovereign power, noting that “[i]t is inconsistent with this Court’s proper role to ask Congress to address a false constitutional premise of this Court’s own creation.” The majority noted that the South Dakota law “affords small merchants a reasonable degree of protection” and “other aspects of the Court’s [dormant] Commerce Clause doctrine can protect against any undue burden on interstate commerce.” The majority opinion specifically notes that “the potential for such issues to arise in some later case cannot justify an artificial, anachronistic rule that deprives States of vast revenues from major businesses.” Finally, the majority decision provides that in the absence of Quill and Bellas Hess, the first prong of Complete Auto simply asks whether the tax applies to an activity with substantial nexus with the taxing State and that here, “the nexus is clearly sufficient.” Specifically, the South Dakota law only applies to sellers that deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions, which “could not have occurred unless the seller availed itself of the substantial privilege of carrying on business in South Dakota.” With respect to other principles in the Court’s dormant Commerce Clause doctrine that may invalid the South Dakota law, the majority held that “the Court need not resolve them here.” However, the majority opinion does note that South Dakota appears to have features built into its law that are “designed to prevent discrimination against or undue burdens upon interstate commerce” including: (1) a [...]

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Tax in the City: March Key Takeaways

McDermott hosted the first Tax in the City® meeting of 2018 in its Chicago office on March 15, 2018. Tax in the City® is a discussion and networking group for women in tax aimed at fostering collaboration and mentorship, and facilitating in-person connections and roundtable events around the country.

The Chicago program was one of the best attended Tax in the City® events to date, featuring a CLE/CPE presentation about the State Tax Impacts of Tax Reform by Cate Battin, Alysse McLoughlin and Diann Smith, followed by a discussion of Employee Benefits Impacts of Tax Reform by Diane Morgenthaler. The roundtable portion of the event covered federal tax reform issues, such as effects on partnerships, the GILTI tax, the BEAT tax, followed by an update on South Dakota v. Wayfair, a United States Supreme Court case reexamining the physical presence requirements for state sales tax collection nexus.

Key State & Local Tax Takeaways from Tax in the City® Chicago

  1. Without legislation at the state level, any tax payment impact from the federal repatriation transition provisions will all be concentrated in one year for state tax purposes, as opposed to the federal level where the impact will be spread over eight years.
  1. A company may have a GILTI issue at the state level, even if not at the federal level, because the states don’t take foreign tax credits into account.
  1.  Conforming to GILTI may create unconstitutional discrimination against foreign commerce.
  1.  States and taxpayers need to consider upon which federal return lines the new provisions will appear and how special statements, such as the repatriation statement, will map to state calculations the return and what schedules are used.

The next Tax in the City® meeting will take place in Seattle, WA on May 22. Please reach out to Mia Dubinets at mdubinets@mwe.com if you’d like to be added to the Seattle Tax in the City® mailing list, and receive invitations for the May event.

We invite all tax professionals who identify as female to join Tax in the City® official LinkedIn group to continue the conversation and share tax developments in between events and meetings! Click here to join.




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