Sales Tax Slice: A Year in Review

As 2013 draws to an end, it’s natural to reminisce about such an eventful year. Indeed, 2013 had many noteworthy events – a royal birth, a new pope, and a third (THIRD!?) Red Sox World Series victory in 10 years, just to name a few.

In addition, the world of sales and use tax had its share of newsworthy and impactful developments. However, if there was a bracket contest for the most intriguing or most popular sales tax story for 2013, the developments surrounding sales tax nexus and e-commerce would likely take the top seed. Indeed, a few notable highlights (or low points, depending on your perspective) to support such a ranking include:

  • LLC v. New York Dept. of Taxn. and Fin., U.S., No. 13-252 (2013), cert. denied12/2/13; and LLC v. New York Dept. of Taxn. and Fin., U.S., No. 13-259 (2013), cert. denied12/2/13. In what was likely the biggest story of 2013, the two online retailers challenged the New York Court of Appeals decision upholding the state’s click-through nexus statute. The retailers argued that the law requires out-of-state sellers to collect sales tax on remote purchases, even though the seller lacks a physical presence in the state, as required by Quill Corp. v. North Dakota, 504 U.S. 298 (1992). The challenge would have forced the Supreme Court to re-examine the rigid physical presence standard under Quill, a ruling handed down over 20 years ago and long before technology made e-commerce into the multi-billion-dollar a year industry it has become. But for now, New York’s law stands.
  • Performance Mktg. Ass’n Inc. v. Hammer, No. 114496 (Ill. Oct. 18, 2013). Here, the Illinois Supreme Court came to a different conclusion than the New York court when presented with a similar issue. The court ruled that, because the Illinois statute targeted out-of-state Internet retailers, and it did not require use tax collection by out-of-state retailers who entered into similar agreements with “offline” Illinois print publishers and over-the-air broadcasters, the tax was a “discriminatory tax” under the federal Internet Tax Freedom Act of 2007 (H.R. 3678) and the state was thus preempted from imposing it.
  • In August, in Direct Mktg. Ass’n v. Brohl, No. 12-01175 (10th Cir. Aug. 20, 2013), the Tenth Circuit declined to hear a challenge to Colorado’s reporting and notice requirements for electronic commerce vendors and other retailers that do not collect taxes on sales to state purchasers. The court determined that the Tax Injunction Act deprived the district court of jurisdiction to enjoin the state’s tax collection efforts and remanded the case for dismissal. 
  • On May 6, the Marketplace Fairness Act (S. 743) (MFA) passed the Senate by a vote of 69-27. The Senate version of the bill, in short, allows states to compel collection from online retailers with at least $1 million in annual remote sales. After passage in the Senate, the MFA was then sent to the House Judiciary Committee for debate, where it is currently stalled. In September, Judiciary Committee Chairman Rep. Bob Goodlatte (R-Va.) issued a news release listing seven goals for the legislation and outlining his priorities for the MFA, signaling a departure from the bill passed by the Senate. 

So what does this all mean for 2014? In denying certiorari for the Overstock and Amazon matters, the Court created a ripple that will likely lead to other states attempting to enact similar legislation. Further, and Direct Mktg.may indicate the federal courts’ reluctance to hear a state tax case or their desire for Congress to resolve the issue. On that front, the MFA remains stalled in the House, where politics are playing a role to a certain degree, but fundamental disagreements over the function and fairness of the MFA as well as disagreement over the exemption amount are primary points of contention. With that in mind, it’s clear that the MFA will have to undergo significant revisions if there is going to be any action with the bill in 2014.

Continue the discussion on the BBNA State Tax Group on LinkedIn What was the biggest story/development in 2013 for sales and use taxes? 

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