U.S. Supreme Court Likely to Change Online Tax Rules: Speakers

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By David McAfee

The U.S. Supreme Court didn’t decide to revisit a 26-year-old decision limiting states’ tax authority over online sales without intending to make changes, state tax practitioners said Feb. 8.

The high court in January granted review of South Dakota v. Wayfair, a case contesting the 1992 Quill Corp. v. North Dakotadecision that prohibits states from imposing tax collection obligations on vendors without a physical presence in-state.

The problem is that no one knows what those likely changes will bring, or what the nexus for determining taxability will be in the future, Kelley Miller, counsel in Reed Smith LLP’s Tax Group, said at the American Bar Association Section of Taxation’s Midyear Meeting in San Diego, Calif.

“I think the bigger issue is, if Quill is overturned, and we have a new substantial presence test, or a new bright-line test, what is it?” Miller told Bloomberg Tax. “If we are going to have a new standard, what will that new standard be?”

The Supreme Court could simply address the issue of retroactivity and contemplate, as Quill did, reliance on earlier cases, Miller said after a panel discussion. The Quill Court also said Congress should resolve the issue of state taxation of online sales.

‘Local Government Problem’

R. Bruce Johnson, senior vice president of tax policy at Taxometry, an online tax software developer, said the “local government problem is a problem.” The Supreme Court will often give deference to the 50 states, but doing so with 8,500 jurisdictions could cause issues, he told Bloomberg Tax.

However, Johnson added, the fact that the Supreme Court has granted review on this issue is a “very favorable” sign that Quill will be changed.

“It would certainly appear to us that we’ve got Kennedy’s vote and, you know, I think Gorsuch said some things that looked good,” Johnson told Bloomberg Tax after the panel discussion. “I’m not a Supreme Court expert by any means, but it’s an anachronism. I think it’s time it should be reviewed.”

Johnson, was counsel on a friend-of-the-court brief on behalf of the Streamlined Sales Tax Governing Board Inc., supporting South Dakota’s request for review. He said that he “hopes” the court overturns Quill, but that he thinks the business community will have to work together to bring more order if that happens.

To contact the reporter on this story: David McAfee in San Diego at dmcAfee@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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