Supreme Court to decide South Dakota challenge to Quill

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The Supreme Court may be on the verge of tidying up an issue that has vexed states since the beginning of online sales—the attempt to collect tax on the sales by remote sellers into their states.

The Supreme Court’s 1992 decision in Quill Corp. v. North Dakota established the physical presence test for sales and use tax nexus. Since the beginning of online sales by remote sellers, states have struggled to find ways to collect tax revenue from the sales into their states by sellers located outside the state.

In 2016, South Dakota enacted legislation implementing an economic nexus standard requiring remote sellers without a physical presence in the state to collect sales tax if certain gross revenue or transaction thresholds were met. A number of states followed suit, enacting similar legislation in 2017. On Sept. 13, 2017, the South Dakota Supreme Court held the state’s law to be unconstitutional in South Dakota v. Wayfair, Inc.

On Jan. 12, 2018, the U.S. Supreme Court granted South Dakota’s petition for a writ of certiorari asking for a rehearing.

“The case is supposed to be heard in April, with a final decision possible in June,” said Jamie Yesnowitz, Grant Thornton principal and SALT National Tax Office Leader at Grant Thornton.

“The court could go one of many ways,” said Yesnowitz. “It could conceivably go the procedural route and decide that the law is invalid based on precedent. I don’t see that as a likely solution, but it’s not outside the realm of possibility.”

“The court could say simply that the legislation is good, or that Quill is gone,” he added. “Or it could set its own standards in this area and evaluate the South Dakota legislation in terms of its own standard. As a final alternative, the court could say the legislation is bad because it’s up to Congress to decide the question.”

Yesnowitz doesn’t expect the court to speak with one voice on the issue.

“Courts have been very divided on this issue,” he said. “It doesn’t fall neatly within political lines. As a result, there may be a lot of concurring opinions and dissents.”

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