States, Retailers Continue to Spar as Online Sales Grow

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By Laura Davison

Leading state and local tax practitioners expect tensions between state tax authorities and online retailers to grow as states continue to push for revenue from remote sales, leaving the courts to resolve disputes.

States and e-commerce companies have been sparring at the state level as federal lawmakers have been unable to enact legislation standardizing how cross-border sales tax should be collected. At the center of the controversy is a 1992 Supreme Court ruling, Quill Corp. v. North Dakota, 504 U.S. 298, that prohibits states from imposing sales and use tax collection obligations on vendors without an in-state physical presence.

In the meantime, online sales continue to increase.

“Long term, there is going to be greater collection,” Joe Crosby, a principal at Multistate Associates Inc., said April 12 at an event sponsored by Bloomberg BNA and Reed Smith LLP. “Commerce itself is changing. The states have pursued a number of different methods to a straight up challenge” to Quill.

Many states want the ruling overturned and have been pushing to expand their ability to tax through legislative or regulatory changes. Nearly 20 states, through administrative rules or statutes, have pushed for economic nexus standards so far this year. Many retailers are resistant to a state-by-state approach that could create a hodgepodge of confusing and competing requirements.

States Are ‘Frustrated.’

“The reason we are frustrated and feel a sense of urgency is because our sales tax base has eroded,” Julie Magee, commissioner at the Alabama Department of Revenue, said. Alabama is “now collecting one-third of the economy in our sales tax world, where in the 70s we were collecting two-thirds of the economy.”

Magee said she used to support a federal law change to oversee online sales tax problems, such as the Marketplace Fairness Act, but it’s now “too late” and there’s little indication Congress will act this year. Now she’s looking to overturn Quill, Magee said.

Legal challenges are advancing in Alabama, South Dakota and Tennessee over their economic nexus regimes.

The South Dakota Supreme Court should reach a decision in 2017 about a statute enacted in 2016, which a lower circuit court ruled unconstitutional in March ( South Dakota v. Wayfair, Inc. , S.D. Cir. Ct., No. 32 Civ. 16-000092, 3/6/17 ). South Dakota lawmakers crafted the law as a vehicle to undo Quill.

Turning Tide

“You are going to unleash a crimson tide of federal legislation by overturning Quill,” Steve DelBianco, executive director of NetChoice, a coalition of e-commerce companies and trade groups, said. “Overturning Quill unleashes the states to pursue no simplification whatsoever and to send auditors to every corner of the country.”

Sellers want to comply with tax collection and remittance laws, but the solution has to be simple, Julie Stitzel, senior manager of federal advocacy and policy at Etsy Inc., said.

Craig Johnson, executive director of the Streamlined Sales Tax Governing Board Inc., says he is still pushing for congressional action, because “that’s the only way you are going to get it uniform throughout the country.”

For now, Congress is unlikely to address online e-commerce issues: Lawmakers have a calendar filled with salvaging a plan to repeal the Affordable Care Act, reaching agreement on funding the government, raising the debt limit and pushing through legislation to overhaul the tax code. But that could change if the South Dakota challenge to Quill goes to the Supreme Court, Crosby said.

“I fully expect there will be a response if there is a cert petition,” he said. If a petition for certiorari is filed, “I don’t know yet what that response will be.”

To contact the reporter on this story: Laura Davison in Washington at

To contact the editor responsible for this story: Meg Shreve at

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