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Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York and multistate tax law. Noonan's Notes Blog is a winner of CreditDonkey's Best Tax Blogs Award 2017.


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Quill Overturned!


This morning the U.S. Supreme Court sent a shockwave through the Internet—and the SALT community—by issuing its long-awaited decision in the South Dakota v. Wayfair case and resoundingly overturning the Quill physical-presence nexus standard that had been the law of the land for sales tax purposes for the past several decades.

This. Is. Huge. News. And not just for state tax nerds. Unless you’re a Luddite who refuses to buy or sell anything on-line, this decision is going to affect you.

In a 5-4 decision written by Justice Anthony Kennedy, the Court ruled that the “physical presence rule [has] become further removed from economic reality” with every passing year. In the view of a majority the Court, the growth of e-commerce and Internet sales has made Quill unworkable and unreliable as precedent; so the Court took the somewhat unusual step of overturning not one but two of its prior decisions on the issue (Quill and a 1967 case called Bellas Hess). And once it disposed of Quill, the Court remanded the case back to the lower courts for a determination on whether South Dakota’s new nexus standard did not discriminate against or unduly burden interstate commerce in violation of the dormant Commerce Clause.

And what does South Dakota’s new law provide? The law requires a seller to collect and remit the South Dakota sales tax if it: (i) delivers more than $100,000 of goods and services into South Dakota, or (ii) engages in 200 or more transactions for the delivery of goods and services into South Dakota. The Supreme Court held that the above limitations—along with prospective-only applicability and South Dakota’s participation in the multistate Streamlined Sales and Use Tax Agreement —appears to have been “designed to prevent discrimination against or undue burdens upon interstate commerce.”  So, even though the case was remanded to the lower courts, a majority of the Supreme Court is sending signals that South Dakota’s new law seems OK.

Since the Wayfair case has been pending, many commentators have predicted that Congress might step in once the dust settles on the decision. Of course, those same commentators have been waiting for Congress to do the same since the Court invited them to do so in the 1992 Quill decision. And moreover, why would that be necessary now? If I’m a tax department official or legislator, I would do the quickest copy-and-paste job in the history of word processing and seek to pass a law just like South Dakota’s. In fact, many states have already jumped on the bandwagon and proposed or passed similar provisions. We can expect to see many of these (and more) looking to craft new laws on the now-blessed South Dakota model.

In the meantime, I’m going to jump on the Internet and make a few more sales tax-free purchases while I have the chance.

Comments (1)

Posted by Richard atcheson on January 22, 2019, 9:38 pm:

It's not the state tax that's the problem it's all the local taxes. Zip codes do not work

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