INSIGHT: ‘Quill’ Pickle? How ‘Wayfair’ Could Undermine Some State Sales Tax Economic Nexus Provisions

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Hugh Goodwin

By Hugh Goodwin

The U.S. Supreme Court’s Wayfair decision ( South Dakota v. Wayfair, Inc. U.S., No. 17-494 (June 21, 2018)), set aside the physical presence sales and use tax nexus prerequisite sanctioned by the Court in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). The South Dakota law upheld in Wayfair imposed a sales and use tax registration, collection, and remittance requirement on remote sellers who on an annual basis had either over $100,000 in sales or engaged in at least 200 “separate transactions” with South Dakota customers.

The Wayfair Court’s reasons for finding that the South Dakota provision did not impose an impermissible burden on interstate commerce included the following:

  •  The South Dakota legislation applied “a safe harbor to those who transact only limited business in South Dakota” (i.e., the $100,000 sales and 200 number of transactions minimum thresholds);
  •  The South Dakota legislation ensured “that no obligation to remit the sales tax may be applied retroactively.”
  •  “South Dakota is one of more than 20 States that have adopted the Streamlined Sales and Use Tax Agreement. This system standardizes taxes to reduce administrative and compliance costs: It requires a single, state level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules. It also provides sellers access to sales tax administration software paid for by the State. Sellers who choose to use such software are immune from audit liability.”
Given these guidelines, legitimate questions arise as to whether the economic sales tax nexus provisions enacted by other states in anticipation of a South Dakota victory pass muster under the criteria articulated in Wayfair.

Streamlined Sales and Use Tax Agreement

For example, Louisiana is not a member of the Streamlined Sales and Use Tax Agreement (SSUTA). Given the Court’s language in Wayfair citing the taxpayer protections of the SSUTA as a reason for upholding South Dakota’s law, it should not be automatically assumed that Louisiana’s state and local sales tax statutes and enforcement practices contain the seller protections of “a single, state level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules.”

Although Louisiana has enacted provisions that authorize it to enter in to the SSUTA, the state has not done so, and, at this point, it is only an Advisory State to the SSUTA’s Governing Board. It is unclear if that is enough to satisfy the Wayfair criteria, or if Louisiana’s failure to adopt the SSUTA deprives remote sellers of the benefits of the SSUTA’s uniformity and simplified structure in dealing with Louisiana’s tax regime. Indeed, local practitioners have documented the sales and use tax uniformity problems between and among Louisiana’s state and local governments in sales tax administration and interpretation. (See “ Louisiana’s Remote Seller Law Poses Compliance Challenges,” Paul Stinson, Daily Tax Report: State, June 19, 2018).

The point is that the Court’s Wayfair analysis may have added additional requirements for finding an economic nexus provision constitutional. These requirements may not have been anticipated by states that simply adopted their economic nexus provisions by modeling them after South Dakota’s minimum sales and transactions thresholds.

By lauding the SSUTA and citing it as a protection for taxpayers, the Court may have thrown a monkey wrench in the path of non-SSUTA states. These states, and any others whose laws fall short of the Wayfair standards, may now find themselves attempting to enforce constitutionally deficient nexus provisions or remedying those deficiencies by becoming full members in the SSUTA and changing their laws accordingly.

Enforcing Compliance Pre-'Wayfair’

It is also not clear that Wayfair makes it any easier for states that adopted economic nexus regimes to pursue non-complying sellers for periods before Wayfair was issued. For instance, Massachusetts enacted a so-called “cookie” nexus regulation effective Oct. 1, 2017, that was specifically cited in Wayfair, where the Court noted that the regulation “would have defined physical presence to include making apps available to be downloaded by in-state residents and placing cookies on in-state residents’ web browsers.” See 830 CMR 64H.1.7.

With respect to such provisions, however, the Wayfair Court further noted that laws “of this sort are likely to embroil courts in technical and arbitrary disputes about what counts as physical presence.” Moreover, the Court said, “the physical presence rule as defined by Quill is no longer a clear or easily applicable standard, so arguments based on its clarity are misplaced ” (emphasis added).

Massachusetts is not a member of the SSUTA. Given the Court’s cautionary observations about some of the more expansive nexus provisions adopted by states in recent years, one wonders how a state could justify an attempt to enforce prior compliance under one of these provisions in the wake of Wayfair.


Accordingly, although Wayfair may have resolved some issues, it has raised several others. Each taxpayer’s individual situation is different, and taxpayers should consult their own tax advisors. Some taxpayers, however, depending upon their facts and the states in question, may be in a stronger position to challenge states whose statutes fall short of the Wayfair standards than they were before those standards were articulated by the Supreme Court.

Author Information

Hugh Goodwin is a state and local tax partner at DLA Piper LLP (US) in Silicon Valley. He wishes to thank Naftali Dembitzer in the firm’s New York office and Marisa Kaley in the firm’s Boston office for their contributions to this article.

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