States Not Retreating From Remote Sales Taxation

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By Jennifer McLoughlin

Dec. 13 — Frustration after another year of congressional inaction will mobilize more states to reach for remote sales taxes in 2017.

At issue is the U.S. Supreme Court’s increasingly maligned decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which prohibits states from requiring retailers to collect sales and use taxes absent an in-state physical presence.

Besieged by eroding tax bases and budget gaps, many states have enacted regimes that target remote sales—but don’t wholly discard the physical presence doctrine—such as affiliate nexus and click-through nexus. Buoyed by a 2015 call to action from Justice Anthony M. Kennedy, other states adopted more aggressive measures with the single-minded goal of launching litigation to “kill Quill.”

Alabama and South Dakota have succeeded in enticing new lawsuits already, and several other pending petitions for certiorari ask the high court to address the viability of Quill. However, it is unclear whether the Supreme Court will weigh in.

Meanwhile, with Congress failing in 2016 to break its decades-old dormancy on cross-border taxation, state tax watchers anticipate the shift toward assertive sales tax regimes will continue in 2017. And many businesses are expected to resist those efforts.

“Short of a pure legislative solution or judicial decision that completely eviscerates Quill and sets blanket standards for all types of state and local taxes, I think the states will continue to pursue policies that try to subject out-of-state businesses to their tax regimes,” Jamie C. Yesnowitz, a Washington-based principal with Grant Thornton LLP’s State and Local Tax practice, told Bloomberg BNA in an e-mail. “And likewise, these businesses will continue to push back.”

Following Alabama, South Dakota

Revenue-recovery efforts varied in 2016, ranging from click-through nexus, affiliate nexus, notice and reporting requirements to economic nexus standards. Sixteen states introduced 42 sales tax nexus bills, according to an August report from MultiState Associates Inc.

Bills were enacted in Louisiana, Oklahoma, Vermont and South Dakota, with the latter two shadowing Alabama’s 2015 approach by embracing economic nexus.

Max Behlke, manager of state-federal relations for the National Conference of State Legislatures, predicts that more than a dozen states will introduce economic nexus bills in 2017—and anticipates several will pass.

“States are going to act next year, because they honestly don’t believe that the federal government is going to do anything,” he told Bloomberg BNA.

Wyoming’s Joint Revenue Interim Committee in November approved a proposed bill mirroring South Dakota’s law, and Utah lawmakers are planning to push a bill patterned after the same statute. Tennessee is tracking Alabama with a proposed rule requiring remote retailers with at least $500,000 in annual sales to start registering and collecting tax next year.

Exploring Other Options

Practitioners anticipate that states will also focus their 2017 legislative efforts on two other models.

More states are likely to impose notice and reporting requirements on taxpayers—particularly after the Supreme Court’s Dec. 12 denial of certiorari for dueling petitions over Colorado’s notice and reporting statute.

A twist on the typical affiliate standard that may become more commonplace is imposing collection obligations on marketplace providers, such as Inc. or EBay Inc. While legislative efforts have stalled, states are increasingly exploring the option.

Amazon Solution?

Some point to Amazon’s increasing sales tax compliance as a sign of a “self-correcting problem” under the current Quill rule, to the extent the company has pierced physical nexus by opening facilities in several states.

“Multi-channel retail like that is growing faster than retail overall, and this problem continues to solve itself through the actions of retailers like Amazon,” Steve DelBianco, executive director of NetChoice, told Bloomberg BNA.

According to Amazon’s website, it collects sales taxes in 29 states and the District of Columbia. Not all feature an Amazon facility—such as Alabama, where the company started collecting in November after joining the state’s voluntary remittance program.

However, not all retailers lacking an in-state footprint are keen to follow Amazon’s lead and start voluntarily collecting.

“States in which Amazon is collecting may think they’ve solved this,” Behlke said. However, he explained that Amazon only collects for items it sells—not items sold by third-party providers through the marketplace platform.

Working Out Differences

Despite pressure emanating from the growing patchwork of state regimes, Congress hasn’t moved the needle on the issue.

Three bills are sitting in the Senate and House:

  •  the Marketplace Fairness Act (MFA) (S. 698) and the Remote Transactions Parity Act (RTPA) (H.R. 2775), which both propose destination-based systems; and
  •  the No Regulation Without Representation Act (H.R. 5893), which seeks to codify Quill’s physical presence rule.


Another plan, though only released as a discussion draft, is a hybrid-origin-based system under the Online Sales Simplification Act (OSSA).

Friction among supporters of the varying frameworks has impeded a uniform strategy—with some indicating that Rep. Robert W. Goodlatte (R-Va.), chair of the House Judiciary Committee, has prevented a House vote on bills competing with his proposal.

Maureen Riehl, principal and counsel for MultiState Associates, noted in October that House Speaker Paul D. Ryan (R-Wis.) directed Goodlatte and Rep. Jason Chaffetz (R-Utah), sponsor of the RTPA, to work out their differences in September. And reports indicate that Ryan’s office has since followed up with staffers for Goodlatte, Chaffetz and Rep. Steve Womack (R-Ark.)—House sponsor for the 2013 MFA—with instructions to develop a 2017 solution.

No Quick Fix

However, agreement on a federal framework isn’t likely in early 2017.

“I don’t see the new Congress coming in to race to do a lot of things until they get direction from their leadership and chairs on what direction to go,” Behlke said. He noted that Congress likely won’t address tax overhaul with piecemeal legislation, and a remote sales tax bill could be folded into a broader tax overhaul package. That will take time.

As the congressional battle unfolds, opposition to new nexus measures could take many forms next year, including litigation similar to pending challenges in Alabama and South Dakota—where NetChoice and the American Catalog Mailers Association brought suit.

“Even if one passes, that’s one too many,” said DelBianco. “We’ll continue to do what we need to do.”

And as states broaden nexus—including expansion of factor presence standards for corporate income and gross receipts taxes—businesses need to be prepared.

“Businesses that have a limited physical footprint but have a national marketplace of customers are compelled to continue tracking what the states are doing, and need to have a game plan to respond to” various states' legislation, Yesnowitz said.

To contact the reporter on this story: Jennifer McLoughlin in Washington at

To contact the editor responsible for this story: Ryan C. Tuck at

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