'Quill' Case Challenging Nexus Law Heading to S.D. Court

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By Jennifer McLoughlin

April 27 — South Dakota is getting what it wanted—a lawsuit contesting its recently enacted law that sweeps aside Quill for remote retailers.

Pending approval of the American Catalog Mailers Association's Board, ACMA and NetChoice are planning April 29 to file a complaint in the South Dakota Sixth Judicial Circuit, Hughes County, challenging the facial constitutionality of S.B. 106. Under the statute's provisions, the filing would act as an injunction suspending enforcement of the law.

The announcement to reporters followed an April 27 panel on Internet sales taxation at ACMA's National Catalog Forum, featuring Utah state Sen. Curtis Bramble (R), president of the National Conference of State Legislatures, and NetChoice Executive Director Steve DelBianco.

Protecting ‘Quill.'

The U.S. Supreme Court's 1992 decision, Quill Corp. v. North Dakota, 504 U.S. 298, limited the collection of sales and use tax to vendors with a physical presence in the state.

Under South Dakota's statute, which will take effect May 1, out-of-state sellers with annual in-state sales exceeding $100,000 or 200 separate transactions must collect and remit sales tax (81 DTR H-2, 4/27/16).

ACMA and NetChoice plan to seek declaratory judgment that the South Dakota regime violates commerce clause principles.

“As far as I know, the country I grew up in, states don't get an opportunity to rewrite Supreme Court precedent,” said Hamilton Davison, ACMA president and executive director, noting that an “unworkable” solution will put companies out of business. “And that's what's going on here. It's an example of bad governance in the extreme. It's malpractice. It's unacceptable.”

South Dakota's law joined a growing multi-state effort to encourage litigation that climbs to the U.S. Supreme Court, with the goal of overturning the 24 year-old decision in Quill.

Alabama spearheaded the charge, adopting in 2015 an economic presence model requiring remote vendors whose in-state sales annually exceed $250,000 to collect and remit sales and use tax. That has grown into a seemingly nation-wide campaign to rework the Quill standard (63 DTR H-1, 4/1/16).

Critics argue that states' justification for “Quill killer bills”—namely revenue—doesn't authorize long-arm authority that crosses state borders.

“I think that gets to the root of what we're saying,” DelBianco said after the panel, explaining that a state imposing rates, rules and audits “needs to be a regime where I have a physical presence allowing me to have some say in my state government and in my regulations.”

Federal Solution

While there is apparent agreement on the need for a solution to online sales tax, the form of that solution remains under debate.

Bramble cited U.S. Supreme Court Justice Anthony M. Kennedy's concurring opinion in a March 2015 decision in Direct Mktg. Ass’n v. Brohl (DMA), arguing that technological advancements and marketplace changes have eroded states' sales tax base. Against this modern-day landscape, and alongside judicial decisions in DMA and New York's earlier Amazon case, Bramble sees reason for moving away from the Quill standard.

This approach has been seen in the Marketplace Fairness Act (MFA), the leading contender among a series of bills that have been introduced to enforce collection obligations for remote sales. In conjunction with the permanent extension of the Internet Tax Freedom Act, Senate Majority Leader Mitch McConnell (R-Ky.) agreed to hold a vote later this year on the MFA, which was formerly introduced in several sessions of Congress but never passed both chambers.

Another pending e-commerce proposal, the Remote Transactions Parity Act, has similarly stalled.

However, DelBianco countered with the observation that the DMA and Amazon cases are distinguishable and don't support the dismantling of Quill. Rather, he advocated for an origin-based system, such as House Judiciary Committee Chairman Robert W. Goodlatte's (R-Va.) Online Sales Simplification Act.

To contact the reporter on this story: Jennifer McLoughlin in Washington at jmcloughlin@bna.com

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

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