How Will High Court Rule in Online Tax Case? ‘Anyone’s Guess’

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By Ryan Prete

The U.S. Supreme Court’s surprising decision to revisit a 26-year-old decision limiting states’ tax authority over online sales presents a multitude of potential outcomes, according to several tax practitioners.

“The court could most certainly tweak the rules, they could also do away with the whole precedent completely,” Richard D. Pomp, the Alva P. Loiselle Professor of Law at the University of Connecticut School of Law, told Bloomberg Tax.

The Supreme Court—heeding calls from traditional retailers and dozens of states— granted review Jan. 12 of South Dakota’s contention that the high court’s 1992 ruling in Quill Corp. v. North Dakota is obsolete in the e-commerce era and should be overturned. In Quill, which involved a mail-order company, the Supreme Court invoked the so-called dormant commerce clause, a judge-created legal doctrine that bars states from interfering with interstate commerce unless authorized by Congress. The court said that clause prohibited states from imposing sales and use tax collection obligations on vendors without a physical presence in-state.

E-retailers Wayfair Inc., Inc. and Newegg Inc. challenged 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—which triggered South Dakota’s appeal to the U.S. Supreme Court. Other similar challenges are pending in Alabama, Indiana, Tennessee, Virginia, and Wyoming.

Pomp said that overturning Quill could present major issues for taxpayers.

“If we overturn Quill, will we then face a crazy situation where each state applies their own individual and varying threshold for which businesses would then need to collect and remit taxes?” Pomp said. “If that happens, we will just be where we were before, with taxpayers pushing for the protections currently offered under Quill.

Pomp said that uniformity through a new rule of law, which would establish a new in-state sales threshold that would trigger retailers’ tax collection obligations, would be both beneficial and simplistic for states and businesses.

However, Pomp said it’s extremely rare for the justices to submit recommendations to states. Still, he said the court could hand down a decision that sets forth guidelines for states—including a recommended sales threshold that would exempt small businesses from any new tax collection obligations.

Likelihood of Change?

Lila Disque, deputy general counsel for the Multistate Tax Commission, told Bloomberg Tax she finds it unlikely that the court would grant review in a case just to re-emphasize a previous decision like Quill.

“They generally grant cert with an eye toward overturning or distinguishing a case,” Disque said. “I suspect the most likely conclusion is that the court will find that a Commerce Clause physical presence standard is no longer sensible, and South Dakota’s factor-presence standard is reasonable.”

However, Harley Duncan, a tax managing director at KPMG LLP, told Bloomberg Tax he was south of “50-50" that the high court would overturn Quill.

Duncan said the high court could simply reiterate its position, stated in Quill, that state taxation of online sales is an issue for Congress to resolve. “I would also think the Court could be troubled by the route taken to get the case before the Court. Of course, I have been wrong pretty much all along the way on this one, so we’ll see.”

Likewise, Joe Huddleston, an executive director at Ernst & Young LLP’s National Indirect Tax group and former executive director of the Multistate Tax Commission, told Bloomberg Tax that while many believe the court wouldn’t have taken this case unless they intended to overturn Quill, they can “go in any direction without much warming.”

“It is possible that they could return this issue to the state for the facts to be presented or they could use the case to lay out rules for sales tax nexus,” Huddleston said. “I can’t believe that they will want to go down the road of legislating for the states. They might simply want to make another statement about the legislative responsibility of the Congress.”

Huddleston said that given the lack of issues in dispute in this particular case, it’s “anyone’s guess” what the court might do.


Both Pomp and Disque referred to the issue of retroactivity, which they said was a huge issue in the 1992 Quill decision. Pomp said the issue of retroactivity will be a key issue to watch for during oral arguments.

Disque noted that North Dakota—the 1992 petitioner—has provided protections against any retroactive tax collection.

“Also, we feel that if the court overrules Quill on the basis that the physical presence standard has become unworkable given how commerce has changed, it would be inconsistent for it to apply that ruling to periods prior to the making of such a determination,” Disque said.

Technological Advances

Should the Supreme Court highlight technological advancements in overturning Quill, it could open up new cases.

“The internet has made Quill a relic,” Pomp said. “It could happen that if the court focuses on technology, then there may not be a reason for so much protection over taxpayers when it comes to interstate commerce.”

Pomp said technology could “get us out of the bond were currently in.”

Quill is so protective of taxpayers,” Pomp said. “The court could very well feel it’s now time to protect state governments.”

South Dakota’s opening brief in the case should be due in late February.

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

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

To contact the editor responsible for this story: Ryan C. Tuck at

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