High Court Extends Review of Digital Tax Case

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By Ryan Prete

The U.S. Supreme Court needs more time to consider whether to re-examine a 25-year-old restriction on states’ taxing authority over remote retailers.

The high court has redistributed the closely watched case for its Jan. 12 conference, after a Jan. 8 order that included neither a grant nor a denial.

Joseph Bishop-Henchman, executive vice president at the Tax Foundation, told Bloomberg Tax the extension shouldn’t necessarily be seen as a silver lining for South Dakota.

“Since it wasn’t in the orders list today, they either didn’t get to it or want to read more on it,” Henchman said. “Historically, a case that keeps coming up on the conference agenda week after week was a good sign for them eventually accepting the case.” But “it may not give us more insight.”

The case at issue is South Dakota v. Wayfair Inc., which concerns South Dakota’s digital sales tax statute, S.B. 106 (S.D. Codified Laws Chapter 10-64). The state supreme court found the statute unconstitutional under Quill Corp. v. North Dakota, the 1992 Supreme Court decision that prohibits states from imposing sales and use tax collection obligations on vendors without a physical presence in-state.

Similar challenges to Quill, which Justice Anthony Kennedy invited in a 2015 concurrence, are pending in state courts in Alabama, Tennessee, Wyoming, and Indiana.

Mixed Reactions

Jamie Yesnowitz, a principal and national tax office leader at Grant Thornton LLP, told Bloomberg Tax that he doesn’t believe the extension changes the probability of the court accepting the petition.

Yesnowitz gives the high court a 25 percent chance of granting cert, a figure he called “relatively high.”

Steve DelBianco, president and CEO of NetChoice, a Washington-based internet commerce trade association that is leading most of the “kill Quill” challenges, told Bloomberg Tax that the extension reflects a minority among justices who want to take up the issue.

“It indicates that as of now fewer than four Justices believe South Dakota’s appeal deserves a review,” DelBianco said.

Meanwhile, the retail industry reacted to the extension by affirming its position that the high court must act on the case.

“The Court’s decision to re-list South Dakota’s petition is consistent with the justices’ careful consideration of the thousands of petitions they receive,” Deborah White, senior executive vice president and general counsel at the Retail Industry Leaders Association, said in a statement emailed to Bloomberg Tax. “Retailers have supported this case since the beginning, and still believe it is the right case to correct the constitutional course set more than 50 years ago—well before the advent of e-commerce—that today gives online-only retailers an unfair commercial advantage at the expense of local retailers.”

The case is South Dakota v. Wayfair, Inc., U.S., No. 17-494, redistributed for conference 1/12/18

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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