Supreme Court’s Digital Tax Case: Surge of Briefs Begins

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By Ryan Prete

The U.S. Supreme Court has received the first four of an anticipated wave of briefs in a long-simmering challenge about states’ taxing authority over online retailers.State tax practitioners are expecting a flurry of friend-of-the-court briefs in South Dakota v. Wayfair—a case directly challenging the 1992 ruling in Quill Corp. v. North Dakota that prohibits states from imposing sales tax collection obligations on vendors lacking an in-state physical presence.

The first briefs, filed March 1 and 2, were from the city of Little Rock, Ark.; the National Association of Certified Service Providers and Software & Information Industry Association; Professor John S. Baker Jr.; and the South Dakota Retailers Association.

Little Rock and the South Dakota Retailers Association present arguments in favor of South Dakota, which reiterated its call to “kill Quill” in its Feb. 26 brief on the merits. The other two briefs don’t favor any party—instead one voiced concerns over the potential implications for international commerce and the other highlighted software available for e-commerce compliance.

Oral argument in the case is scheduled for April 17, and practitioners have forecasted a decision by late June.

However, the office of Rep. Kristi Noem (R-S.D.), the sponsor of the Remote Transactions Parity Act of 2017 (H.R. 2193) (RTPA)—which seeks to undo Quill—told Bloomberg Tax that the RTPA needs be enacted before the Supreme Court hands down a decision. It’s unclear if Congress can pass a legislative solution to the digital sales tax dispute after years of stalled competing proposals.

Impact on International Commerce

Professor John S. Baker Jr.'s brief said that all parties in the case have failed to address the “impact of South Dakota’s tax on transactions over the internet between buyers in the United States and foreign sellers.”

“The Court should require in this case, or in some future case, briefing on the Import-Export Clause as applied to foreign commerce,” according to the brief.

Baker told Bloomberg Tax that Congress must address the effect that South Dakota’s law could have on international commerce.

“The Internet is inherently international,” he said. “The Constitution’s clear language specifically prevents individual states from imposing taxes that directly hit the importation of products and services.”

Software Available

The National Association of Certified Service Providers and the Software & Information Industry Association also didn’t take a side, but argued that low-cost software is available to ease tax reporting costs.

“Cost-effective technology solutions are readily available that resolve the difficulty of calculating and remitting taxes across all jurisdictions,” according to their brief.

Scott Peterson, vice president of U.S. Tax Policy and Government Relations for Avalara Inc.—a tax compliance software company—told Bloomberg Tax that while Avalara didn’t join the two companies in filing the brief, “tax filing automation is certainly alive and well, and moderately-priced options are abound.”

Supporting South Dakota

Little Rock’s brief didn’t delve into the legal merits of the matter. Rather, the city presented the brief “to demonstrate the significant impact that the tremendous economic presence of internet sales has on one local community.”

“Such an economic presence should be a sufficient basis to determine that Quill is antiquated law and should be overturned,” according to Little Rock’s brief.

Little Rock noted that although e-commerce giant Inc. decided to voluntarily collect sales tax on direct purchases in 2017, the company represents no more than 60 percent of the city’s internet sales market, leaving a vast pool of untapped tax revenue.

Similarly, the South Dakota Retailers Association argued that untaxed e-commerce sales would continue the trend of weak sales tax revenues in the state.

The association also argued that under current precedent, in-state brick-and-mortar companies are at a “competitive disadvantage.”

“With the cost of a good sold in South Dakota subject to the collection of sales tax adding as much as six and one-half percent to the cost of an item versus an identical item sold online, the unfair business advantage of the e-commerce company not collecting and remitting sales tax is obvious,” according to the brief.

More Briefs Expected

Briefs in favor of South Dakota are due March 5. A dozen parties filed briefs in support of the state’s original request for Supreme Court review.

Retailers in the case—Wayfair Inc., Newegg Inc., and 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. Half a dozen briefs were filed in support of the retailers’ opposition to Supreme Court review.

In the meantime, practitioners are watching Congress for potential movement on the issue.

Noem’s RTPA bill isn’t the only federal proposal attempting to undo Quill. The Marketplace Fairness Act of 2017 (S.976) (MFA), introduced by Sen. Michael Enzi (R-Wyo.), also seeks to end Quill. Neither the RTPA nor the MFA have received a floor vote or hearing from the 115th Congress.

On the opposite end of the spectrum, the No Regulation Without Representation Act of 2017 (H.R. 2887) (NRRA)—which would, in part, codify Quill’s physical-presence standard—received a House Judiciary subcommittee hearing in July 2017. The bill hasn’t moved since then.

Rep. Bob Goodlatte (R-Va.), House Judiciary Committee chair, is often considered by members in the state and local tax community as the biggest hurdle to e-commerce reform. However, Goodlatte announced he will retire in November.

The case is South Dakota v. Wayfair, Inc., U.S., No. 17-494, friend-of-the-court-briefs filed 3/1/18 .

To contact the reporter on this story: Ryan Prete in Washington at

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

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