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By Ryan Prete
A wave of parties have used their last chance to chime in on a case requesting the U.S. Supreme Court broaden states’ taxing authority to capture revenue from digital sales.
Friend-of-the-court briefs flooded the high court docket on the March 5 deadline in South Dakota v. Wayfair, Inc.—a case directly challenging the 1992 ruling in Quill Corp. v. North Dakota that prohibits states from imposing sales tax collection obligations on vendors lacking an in-state physical presence. South Dakota filed its brief on the merits Feb. 26.
A majority of the briefs support South Dakota’s digital sales tax statute, S.B. 106 (S.D. Codified Laws Chapter 10-64), which the South Dakota Supreme Court found unconstitutional under Quill—triggering the state to appeal to the U.S. Supreme Court.
The e-commerce retailers in the case—Wayfair, Overstock.com, Inc. and Newegg, Inc.—have until March 28 to file their brief on the merits, and supporters of the companies have until April 4 to file their friend-of-the-court briefs. Oral arguments in the case are set for April 17, and a decision is expected by late June.
One brief was penned on behalf of four U.S. Senators—Heidi Heitkamp (D-N.D.), Lamar Alexander (R-Tenn.), Richard Durbin (D-Ill.), and Mike Enzi (R-Wyo.)—to tell the high court that “Congress is fully prepared to act when needed.”
“Amici are filing this brief to demonstrate that overturning Quill will not leave respondents and other out-of-state sellers without a Dormant Commerce Clause defense and to assure the Court that Congress stands fully prepared to step in if other states or localities, unlike South Dakota, seek to impose excessive burdens on out-of-state retailers that become obligated to collect sales and use taxes,” according to the brief.
The high court in Quill said Congress was best suited to resolve the issue of state taxation of online sales, but bills introduced over the years (including a handful in the current Congress) have languished without a floor vote.
Advocating for a decision overturning Quill, the senators argued in the brief that “vast confusion” won’t “ensue if the states are freed from the bright-line rule of Quill” for several reasons:
Noem’s RTPA bill isn’t the only federal proposal attempting to undo Quill. Enzi is the sponsor behind the Marketplace Fairness Act of 2017 (S.976) (MFA), which also seeks to upend Quill.
On the opposite end of the spectrum, the No Regulation Without Representation Act of 2017 (H.R. 2887) (NRRA)—which would, in part, codify Quill’s physical-presence standard—received a House Judiciary subcommittee hearing in July 2017. The bill hasn’t moved since then.
Rep. Bob Goodlatte (R-Va.), House Judiciary Committee chair, is often considered by members in the state and local tax community as the biggest hurdle to e-commerce reform. However, Goodlatte announced he will retire in November.
Another brief— filed for Colorado and 40 other states, two U.S. territories, and the District of Columbia—argued that Quill‘s physical-presence standard should “wash away with the tides of time,” because of “extraordinary advances in technology.”
The brief also argued that Quill impairs states’ ability to deliver crucial government services because of sale tax revenue shortfalls and infringes on states’ sovereignty, and the collection burdens that prompted the physical-presence rule have drastically faded.
Colorado might be a curious leader of the coalition because of its unique reporting-style law, which the e-commerce retailers opposing South Dakota’s law cited as a reason the high court should maintain the Quill standard.
The retailers have argued that the foundational criticism of Quill—that the law prevents collection of taxes from remote sales—is faulty. In February 2016, the U.S. Court of Appeals for the Tenth Circuit upheld as constitutional the 2010 Colorado law requiring out-of-state sellers that don’t collect sales and use tax to (1) notify buyers at the time of transaction that tax isn’t being collected but may be due, (2) provide consumers an annual report of their purchases, and (3) send an annual report to the state showing total dollar amount of each buyer’s purchases.
“As a result, notice and reporting laws have given the states ‘new tools for improving consumer-based use tax compliance,’” according to the retailers’ December 2017 brief opposing Supreme Court review. They further noted that after the Tenth Circuit’s holding, several states followed Colorado’s lead by adopting similar laws, including Louisiana, Pennsylvania, Rhode Island, Vermont, and Washington.
There has been a frenzy of state activity this year, and in recent years, to adopt varying regimes to expand state tax collection authority over online sales, whether through notice-and-reporting laws, revised nexus thresholds based on sales figures, or the newest: laws placing collection duties on Amazon-like marketplace providers on behalf of the third-party sellers on their platforms.
Lawsuits designed to directly challenge Quill, stemming from some of those new laws, also are pending in Alabama, Indiana, Ohio, Tennessee, Virginia, and Wyoming. The DOR in Alabama has asked to stay the case pending the high court’s resolution of the Wayfair case.
As of March 5, parties filing briefs in favor of South Dakota included:
Multiple organizations have also filed briefs in favor of neither party, those include:
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