First Digital Sales Tax Dispute Reaches U.S. Supreme Court

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By Ryan Prete

South Dakota’s Attorney General has filed the first of an expected wave of state petitions asking the U.S. Supreme Court to reconsider a 25-year-old opinion restricting states’ ability to tax remote retailers.

South Dakota is appealing a Sept. 13 state Supreme Court affirmation of a lower court ruling, which found the state’s “economic nexus” law, S.B. 106 (codified as S.D. Codified Laws Chapter 10-64) unconstitutional under Quill Corp. v. North Dakota —the 1992 U.S. Supreme Court ruling that prohibits states from imposing sales and use tax collection obligations on vendors without a physical presence in-state ( South Dakota v. Wayfair, Inc. , U.S., petition for review filed 10/2/17 ).

“The retail landscape significantly changed with the inception of the internet and access to online shopping. Federal law currently shields out-of-state businesses from remitting the same taxes as South Dakota businesses. Today the State asks the U.S. Supreme Court” to level the playing field, South Dakota Attorney General Marty Jackley (R) said in an Oct 2. press release.

“The explosion of omnipresent online retailers and vast technological changes since Quill call for an end to the physical presence requirement. If the U.S. Supreme Court ultimately strikes down Quill, retail sales tax obligations can be applied fairly to both internet and main street businesses,” the statement said.

South Dakota is the first of several expected cases to ask the U.S. Supreme Court to revisit Quill. Similar “kill- Quill” lawsuits are pending in state courts in Alabama, Indiana, Tennessee, and Wyoming. It’s uncertain the U.S. Supreme Court will grant review despite Justice Anthony Kennedy calling for such a test case in a 2015 concurrence and newest Justice Neil Gorsuch having indicated in a past opinion that Quill may be dated.

Many practitioners have questioned whether the South Dakota case will be the testing ground for Quill.

Next Steps

Helen Hecht, Multistate Tax Commission general counsel, told Bloomberg BNA that the high court could make a decision on whether to take up the case by January 2018.

The online retailers—Wayfair Inc., Newegg Inc., and Inc.—have a 30-day period to file a brief opposing Jackley’s petition for review. However, the filing of such a brief is optional, Hecht explained.

The respondents can ask for an extension, and “such extensions are generally granted,” she said.

However, Hecht said a handful of obstacles could delay consideration of the case. For example, the U.S. Supreme Court could ask the U.S. Solicitor General for a brief on the case, which could take an additional 60 days.

Charles A. Rothfeld, special counsel with Mayer Brown LLP, also told Bloomberg BNA in an email that if the respondents get a 30-day extension, an opposition brief would be filed in December and the case would move to conference in January.

“If the Court acted on it promptly (which doesn’t always happen)—and if it granted cert—the case would then be argued in the spring and decided by June,” Rothfeld said.

‘No Support for Status Quo’

Joseph Henchman, executive vice president at the Tax Foundation, told Bloomberg BNA that the Tax Foundation will be filing a friend-of-the-court brief urging the high court to take the case.

“No one supports that status quo. Everyone either wants physical presence to be broader or it to be replaced with something else,” Henchman said. “The Supreme Court helped cause this situation, by declining to hear two decades of nexus cases, so they ought to take it and give some guidance. If they strike down Quill, Congress might even act, as they did after Northwestern Cement.”

The Interstate Commerce Act of 1959 (P.L. 86-272) was enacted in response to the 1959 decision held in Northwestern Cement Co. v. Minnesota .

“The petition explains the incoherent state of the law: physical presence for sales tax due to Quill, sustained physical presence for business income tax due to P.L. 86-272, and the states can do whatever they want for everything else,” Henchman said.

To contact the reporter on this story: Ryan Prete in Washington at

To contact the editor responsible for this story: Jennifer McLoughlin at

For More Information

Text of the petition is at

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