Supreme Court’s Wayfair decision sidelines Quill

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The Supreme Court, in a 5-4 decision penned by Associate Justice Anthony Kennedy, came down on the side of the states in the landmark case South Dakota v. Wayfair, granting them greater power to require out-of-state retailers to collect sales tax on sales to in-state residents. Chief Justice John Roberts wrote a dissenting opinion.

At issue was the court’s 1992 decision in Quill v. North Dakota, which established the physical presence test for sales and use tax nexus. That was before the surge of online sales, and states have been trying since then to find constitutional ways to collect tax revenue from remote sellers into their state.

“Prior to today, Quill required that, to force out-of-state retailers to collect tax on sales to residents of the state, the out-of-state retailer had to have a physical presence in the state,” said Jon Barooshian, a partner at law firm Bowditch. “Today’s decision makes a dramatic change.”

“The Supreme Court is saying that technology has changed so dramatically that Quill and National Bellas Hess [a 1962 case prohibiting a state from requiring a seller to collect use tax on sales by mail to customers in the state] are basically anachronisms,” he said.

“States like South Dakota will now be allowed to require sellers that are selling substantial amounts of product into the state to collect and remit sales tax,” he said.

Additional litigation might be in the offing, according to Barooshian. “Issues regarding smaller mom-and-pop retailers, and the amount of sales necessary to impose the collection obligation on them, would be decided on a case-by-case basis,” he said.

Prior to the decision, many states had already begun planning for the possible overturn of Quill (see “States plan for a post-Wayfair world”).

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