Sales Tax Slice: Quill May Be ‘Washing Away with the Tides of Time’


If you haven’t yet felt the rumble resulting from the Tenth Circuit’s decision this week upholding Colorado’s law requiring non-collecting retailers to report on purchases made by Colorado residents, just wait. The aftershock is coming. Other states are closely watching the outcome of this case, especially those jurisdictions that have already enacted a similar reporting regime.

The Direct Marketing Association and its members, and state revenue departments can be expected to respectively, vilify and hail the court’s decision in DMA v. Brohl. Whatever one thinks about the merits of the decision, there’s probably little doubt that the stage has been set for a showdown between the states and remote sellers, either before the Supreme Court or in Congress. To be sure, the Circuit Court’s decision does not alter Quill’s prohibition against imposing sales tax collection obligations on out-of-state sellers. But the case does clear the way for states to start adopting rules that may help them collect sales and use tax on goods that, at the moment, are likely escaping tax completely.

The states have implemented any number of strategies to collect tax on remote purchases made by in-state customers, including establishing affiliate nexus standards that would create nexus for out-of-state vendors; providing a use tax reporting line on state income tax returns, as a prompt to individuals to self-report and pay tax due on purchases from remote sellers; and authorizing and incentivizing voluntary collection of sales and use tax by non-nexus sellers. The states’ collective Streamlined Sales Tax Agreement and Governing Board structure is perhaps the grandest plan for simplifying sales tax administration, with the ultimate goal of collecting the estimated $23 billion of sales and use tax lost to the states (according to the National Conference of State Legislatures’ 2012 estimate).

Colorado is among a few states, to date, that have enacted a notice-and-reporting requirement for retailers that make sales to in-state purchasers but do not collect the state’s sales and use tax. These retailers are required to notify all Colorado purchasers that their purchases are subject to Colorado sales or use tax. Out-of-state retailers also have to file a report with the Department of Revenue listing their Colorado customers’ names, and mailing or shipping addresses, and providing the total amount of annual purchases made by each in-state customer.

Kentucky, Oklahoma and South Dakota have already enacted statutes similar to Colorado’s, requiring remote sellers to notify and report on in-state purchasers. And, Utah has introduced a bill this legislative session with a somewhat different approach: the proposed law would require owners of “selling platforms” to provide the Utah Tax Commission with the names and addresses of non-collecting sellers making sales to Utah purchasers. The Commission, in turn, would be authorized to send a notice to the non-collecting sellers informing them that their Utah purchasers owe use tax and encouraging the sellers to advise the purchasers of the use tax liability. The Tenth Circuit’s declaration that placing notice and reporting obligations on out-of-state sellers is no more burdensome than the requirements in-state vendors face marks a significant shift in the decades-long brawl over collection of sales tax on remote sales. Indeed, Judge Gorsuch’s concurring opinion practically implores the states to adopt these kinds of regimes when he writes, “many (all?) states can be expected to follow Colorado’s lead and enact statutes like the one now before us.”

There must be something in Colorado’s high altitude favoring the state’s tax collection efforts these days. The online behemoth, Amazon, started collecting sales tax in the state on February 1. Add this development to its success in the Brohl case, and Colorado may just have touched off the final battle over Quill. We may not be far from the day when Quill and its, parent, National Bellas Hess, as Judge Gorsuch put it, “wash away with the tides of time.”

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Is this the beginning of the end for Quill?

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By René Y. Blocker