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By Ryan Prete
The U.S. Supreme Court will soon hear a long-simmering challenge about states’ taxing authority over online retailers. And states should have the high court’s answer by the start of summer.
The court announced Feb. 23 that it would hear oral arguments in the South Dakota v. Wayfair case April 17 at 10 a.m.
The case is a direct challenge to the 1992 ruling in Quill Corp. v. North Dakota that prohibits states from imposing sales and use tax collection obligations on vendors lacking an in-state physical presence.
South Dakota’s deadline for its brief on the merits is Feb. 26, and outside parties have until March 5 to file friend-of-the-court briefs in support of the state. Retailers in the case—Wayfair Inc., Newegg Inc., and Overstock.com Inc.—have until March 28 to file their brief on the merits, and supporters of the companies have until April 4 to file briefs in support.
The case has captivated professionals in the state and local tax (SALT) community for months. Debates about whether the high court would even consider the issue have dominated SALT forums and conventions throughout the country for years as states have increasingly enacted laws to challenge, or simply to subvert, the Quill standard. The court in Quill said the issue was one for Congress to resolve, but bills in Congress have never advanced past one chamber (including several still pending this term).
This is the first case the Supreme Court has accepted about state taxation of online sales since the court’s 2015 decision in Direct Marketing Association v. Brohl—in which justices unanimously remanded a dispute over a Colorado law requiring retailers that don’t collect sales or use taxes to notify any Colorado customer of the state’s tax requirement and to report tax-related information to those customers and the Colorado Department of Revenue.
The ‘kill- Quill” movement intensified after Brohl because of a concurrence Justice Anthony Kennedy filed in the ruling, which called for a future case to re-evaluate Quill. Further, proponents of the movement latched onto a past concurrence of Justice Neil Gorsuch—a former clerk of Kennedy’s who took the bench in April 2017—that indicated Quill may be dated.
State tax lawyers are confident justices will deliver a decision in the case by late June.
Joe W. Garrett Jr., deputy commissioner for the Alabama Department of Revenue, told Bloomberg Tax that an April 17 hearing date “means a June decision is likely.”
Richard D. Pomp, the Alva P. Loiselle Professor of Law at the University of Connecticut School of Law, told Bloomberg Tax that a June decision was “very likely,” and Charles Rothfeld, special counsel at Mayer Brown LLP in Washington, agreed.
Joseph Bishop-Henchman, executive vice president at the Tax Foundation, told Bloomberg Tax the “timeline makes sense” for a decision this summer, because the court starts its term in October and “tries to wrap up all business by June.”
Further, a lawyer familiar with the case told Bloomberg Tax to “expect a decision in June.”
The Supreme Court—heeding calls from traditional retailers and dozens of states—granted review Jan. 12 of South Dakota’s contention that Quill is obsolete in the e-commerce era and should be overturned.
In Quill, which involved a mail-order company, the Supreme Court invoked the so-called dormant commerce clause, a judge-created legal doctrine that bars states from interfering with interstate commerce unless authorized by Congress. The court said that clause prohibited states from imposing sales and use tax collection obligations on vendors without a physical presence in-state.
The e-retailers challenged South Dakota’s digital sales tax statute, S.B. 106 (S.D. Codified Laws Chapter 10-64), which the South Dakota Supreme Court found unconstitutional under Quill—triggering South Dakota’s appeal to the high court. Other digital tax challenges are pending in Alabama, Indiana, Ohio, Tennessee, Virginia, and Wyoming.
Urging the high court to consider the case last November, thirty-five states and the District of Columbia filed a brief asking the high court to take the case. Also filing briefs were:
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