Will Multiple Briefs Sway Supreme Court to Take Digital Tax Case?

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By Ryan Prete

The U.S. Supreme Court has dozens of state attorneys general and interest groups knocking on its door to take up the issue of states’ taxing authority over remote retailers.

A flurry of friend-of-the-court briefs have been filed urging the high court to accept South Dakota’s petition seeking reconsideration of a 25-year-old opinion restricting states’ ability to tax out-of-state sellers.

But does the wave of briefs increase the likelihood of Supreme Court consideration?

Jamie Yesnowitz, principal and state and local tax practice and National Tax Office leader at Grant Thornton LLP, told Bloomberg Tax that the chances have certainly shifted.

“I would view the effect of these filings as making the granting of certiorari incrementally more likely—not something that will make it absolutely certain that the Court will act on a case that already has an elevated chance of being heard in comparison to other cases, but certainly a factor the Court will consider as it goes through its deliberative process in the coming months,” he said.

At least seven briefs have been filed with the U.S. Supreme Court in support of South Dakota Attorney General Marty Jackley’s (R) request for review of a Sept. 13 state Supreme Court ruling that 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., No. 17-494, friend-of-the-court briefs filed 11/2/17 ).

More Briefs, More Consideration

Briefs in support of the South Dakota petition were due Nov. 2. Bloomberg Tax received briefs from the following groups:

David Parkhurst, staff director and general counsel in the Office of Government Relations at the National Governors Association, said it’s his “hope” the chances have risen.

“With a premier issue like this one, the more briefs coming in that highlight the issue, the more consideration the case receives,” he said.

Parkhurst also mentioned Justice Anthony Kennedy’s 2015 concurrence in Direct Marketing Association v. Brohl, calling for a case that provides the opportunity to re-evaluate Quill—a common citation among “kill- Quill” supporters.

“The time is now right,” Parkhurst said.

Joe W. Garrett Jr., deputy commissioner of revenue with the Alabama Department of Revenue, said that state accord goes a long way. Alabama was one of the first states to announce sales tax collection duties for out-of-state sellers based solely on economic nexus, in that case annual sales into the state of $250,000. A dispute over Alabama’s remote retailer tax regulation remains pending in the state’s tax tribunal with a 2018 trial possible.

“The support of so many states combined with the solidarity of the traditional retail business is a strong clear signal to the Court that now is the time to reconsider Quill,” Garrett told Bloomberg Tax in an email. “It has to help.”

Unlikely Leader?

The brief filed by the nearly three dozen states was spearheaded by Colorado Attorney General Cynthia Coffman (R). It asserted that “the unfairness caused by Quill’s physical-presence rule has left the States in an increasingly untenable position.”

Colorado could be seen as an unlikely contender to lead the pack because of its enforcement of notice and reporting requirements, which mandate out-of-state sellers with in-state sales reaching $100,000 to report to the state Department of Revenue information about consumer purchases, including information such as billing and shipping addresses.

Colorado also requires those retailers to notify consumers that tax may be due on their purchases and, for those consumers that spend more than $500, to provide an annual summary of their purchases during the year.

Regardless, Yesnowitz said Colorado’s coalition leadership makes sense.

“This is actually not too surprising in my view,” Yesnowitz said. “I was not privy to how they decided which state would be the lead, but Colorado has been active in this area, most prominently in the area of notice and reporting requirements for remote sellers that do not register with a state.”

“Also, Justice Gorsuch came out from the Tenth District, of which Colorado is the most populous state within that district,” he added.

Justice Neil Gorsuch, who joined the bench this year, has also indicated in a past opinion that Quill may be dated.

Next Steps

The online retailers in the South Dakota case—Wayfair Inc., Newegg Inc., and Overstock.com Inc.—have until Dec. 7 to respond to the state’s petition for review.

The high court will then make a decision to grant review, which could take anywhere between three and six months, according to Yesnowitz.

For now, supporters of the petition, like Garrett, must wait.

“I’ve got my fingers crossed,” he said.

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

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com

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