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A showdown over Wyoming’s new digital sales tax law is brewing in state court with both the attorney general and two trade associations filing suits that will either torpedo or uphold 25-year-old precedent from the U.S. Supreme Court.
Wyoming Attorney General Peter K. Michael (R) filed suit July 7 seeking a declaratory judgment requiring five vendors with no physical presence in Wyoming to collect tax on sales of tangible personal property and services into the state. The defendant companies are Newegg Inc., Overstock.com Inc., Wayfair LLC, Systemax Inc., and Fanatics Inc. ( Wyoming v. Newegg Inc. , Wyo. Dist. Ct., No. 34238, 7/7/17 ).
At issue is H.B. 19, signed by Gov. Matt Mead (R) in March. Codified under Wyoming Statute section 39-15-501, the “economic nexus” law requires out-of-state vendors with more than $100,000 in aggregate annual sales to customers in Wyoming are obligated to remit sales and use taxes. The requirement is also triggered for sellers with more than 200 transactions involving Wyoming consumers.
The state action was filed a week after NetChoice, an e-commerce trade association, and the American Catalog Mailers Association, the largest trade group representing catalog-based retailers, filed their own lawsuit. The two trade groups assert Wyoming’s nexus law is unconstitutional on its face under the 1992 Quill Corp. v. North Dakota decision, which prohibits states from imposing sales and use tax collection obligations on vendors without a physical presence in-state ( Am. Catalog Mailers Assn. v. Noble , Wyo. Dist. Ct., No. 188-137, 6/28/17 ).
Steve DelBianco, executive director of NetChoice, said Wyoming won’t be able to compel online retailers to collect the tax while the case is litigated. The law originally required retailers to commence complying on July 1.
“By operation of the underlying statute, enforcement of the law is enjoined during the pendency of the litigation,” DelBianco told Bloomberg BNA through email.
The dispute in Wyoming mimics a battle in South Dakota involving a nearly identical statute. Under S.B. 106 (codified as S.D. Codified Laws Chapter 10-64), nexus is triggered for remote retailers with annual in-state sales exceeding $100,000 or 200 separate transactions. South Dakota’s law has been attacked by many of the same online retailers named in Michael’s lawsuit. The state’s Sixth Judicial Circuit Court found the law unconstitutional under Quill, and the matter is now before South Dakota’s Supreme Court.
The Wyoming lawsuits broaden the battle over internet sales taxes, with other lawsuits pending in Alabama, Indiana, and Tennessee.
Michael’s action acknowledges Wyoming’s law conflicts with Quill, teeing up a battle in front of the U.S. Supreme Court.
“The state acknowledges that a declaration in its favor will require the abrogation of the United States Supreme Court’s decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), and it will ultimately seek a decision from the United States Supreme Court to that effect in this action,” according to the complaint.
Michael is hitching his star to Supreme Court Justice Anthony Kennedy’s 2015 concurring opinion in Direct Marketing Association v. Brohl. Kennedy used the decision to call for an appropriate case for the high court to re-examine Quill.
“He explained that technological and social change had rendered Quill unsupportable,” the complaint stated. “Since Quill was decided, mail-order and e-commerce sales have increased exponentially from $180 billion in mail order sales to $3.16 trillion in e-commerce sales alone in 2008.”
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Text of the complaint is at http://src.bna.com/qDj.
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