Sales Tax Slice: Of Nexus and National Politics

The biggest global news of the year is the outcome of the U.S. elections. Whatever your thoughts or feelings about the results, critical policy issues, including state tax issues, are in the balance. With the executive and legislative branches both controlled by the same party, and the U. S. Supreme Court soon to have its ninth justice in place again, the next four years could finally bring about resolutions to some really big issues.


One of those big tax issues, perhaps the major issue in sales tax right now, is nexus. Is the time ripe for a conclusion to the nearly 25-year struggle over when states can require out-of-state sellers to collect sales or use tax on goods sold to in-state customers? Two petitions for certiorari currently pending before the Supreme Court are asking the Court to reconsider its 1992 decision in Quill Corporation v. North Dakota. In Quill, the Court held that a state has no authority to require a seller to collect its sales and use tax unless the seller has a physical presence, i.e., nexus, in the state.


Last month, the Colorado Department of Revenue filed a conditional cross-petition for certiorari in DMA v. Brohl (discussed in a blog post earlier this year). The state’s cross petition makes alternative arguments: 1) that the Court should deny DMA’s petition seeking review of the Tenth Circuit’s decision to uphold Colorado’s notice and reporting requirement; and 2) that if the Court grants DMA’s petition, the Court should reframe the issue to ultimately address whether or not Quill should be overturned. Fourteen tax law professors have also weighed in by filing an amicus brief in support of Colorado’s cross petition and urging the Court to reexamine the physical presence standard it upheld in Quill. (See the Nov. 8, 2016, story by Bloomberg BNA’s Tripp Baltz.)


In another petition also filed last month, a Florida-based online company has asked the Court to take another look at Quill, as originally reported by Bloomberg BNA’s Chris Marr. The company’s petition in American Business USA Corp. v. Fla. Dep’t of Revenue, challenges Florida’s “florist tax” statute that requires florists who are located in Florida to collect sales tax on retail sales to customers “regardless of where or by whom” the items will be delivered.


This case presents a different approach to the nexus issue. American Business clearly has a physical presence in Florida—the company is headquartered in the state; it takes internet orders and arranges for delivery in the state; and accepts payment for flowers and other products in the state. American Business does not, however, maintain any inventory—it seems to serve as a middleman between florists and customers. The question raised by the company’s petition to the Supreme Court is whether Quill allows Florida to impose the tax collection obligation with respect to the sale of flowers by the in-state company where the customer is outside the state, the delivery takes place outside the state, and the flowers never have a physical presence in the state.


As for potential legislative action, several bills aimed at addressing Quill have been introduced during the current session of Congress. The Marketplace Fairness Act (S. 698) and the Remote Transactions Parity Act (H.R. 2775) take somewhat similar approaches to the nexus issue by adopting many of the uniformity and simplification measures found in the state-created Streamlined Sales and Use Tax Agreement. The most recently introduced bill, the No Regulation Without Representation Act (H.R. 5893), essentially codifies the Quill physical presence standard. None of the bills made much progress before the election. The likelihood that any one of these bills will pass before the end of the now lame-duck Congress seems pretty slim.


If the sales tax nexus issue remains unresolved this year, will a fully restored Supreme Court in 2017 be inclined to address Quill directly? Or, will the justices leave the matter to an apparently united Congress and President? Such are the post-election questions surrounding nexus.


Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What are your predictions for the future of Quill?


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By René Y. Blocker