11 Dec What Was the Supreme Court`s Holding in Wayfair

On June 21, 2018, the U.S. Supreme Court in South Dakota v. Wayfair, Inc. et al. (5-4, although not the usual liberal/conservative divide) ruled that an online retailer does not need to maintain a physical presence in a state to collect state sales and use tax. This statement sets aside the pre-Internet precedent of Quill v. North Dakota in 1992 and notes that Quill was decided in error. This decision states that the doctrine of stare decisis cannot support Quill`s retention, and that the Internet revolution has made the court`s erroneous attitude in Quill “all the more blatant and harmful.” The notice states that a taxpayer cannot invoke stare decisis if the purpose is tax avoidance. Although the Court did not consider whether this decision was retroactive because the South Dakota legislation in question was not retroactive, it did not restrict its participation prospectively. Meanwhile, online retailers need to quickly adapt to the new tax landscape and start collecting taxes in states that have adopted rules to require collection.

It`s possible that Congress could act to mitigate the impact of this case by enacting legislation regulating what states can and cannot do when it comes to tax requirements. Legislation mandating tax collection has remained in Congress for many years, but today`s decision could prompt Congress to act; And it may also prompt online retailers to push for consistency and simplification of VAT rules. The state of Colorado has experimented with a unique Amazon law that would completely circumvent the issue of physical presence. Instead of trying to directly impose responsibility for tax collection and remittances on distance sellers through a creative definition of “physical presence,” Colorado created a reporting requirement for these sellers. If a distance seller exceeded a certain level of sales, he had to provide the State with a list of customers and sales amounts. The idea was that the state could use this list to collect presumed unpaid sales and use taxes directly from state residents. [12] The Colorado Reporting Law has given rise to a significant amount of litigation that led to a U.S. Supreme Court decision in 2015. While many in the tax community expected the court to address Quill in its decision, the court limited its decision to the application of the Tax Injunctions Act to the case pending before it. [13] [30] Walter Isaacson, counsel for the respondents in Wayfair, noted that a small business selling cheap hand-tied flies for fishermen could easily meet the 200-sales requirement in South Dakota law, although the total annual revenue may not be $1,500. Jéanne Rauch-Zender, On Our Way(fair) Into the Modern World, St.

Tax Notes at 1169, 1175-76 (March 26, 2018). This perfectly plausible example illustrates the difficulty of drawing simple conclusions about what is and is not a “substantial connection”. The Quill Court stated, although previous precedents have focused on physical presence, that “to the extent that our decisions indicate that the due process clause requires physical presence in a state for the imposition of the obligation to levy a use tax, we eliminate those assets as being replaced by developments in due process law.” Another question will be whether Congress will act. Congress has pending bills (Remote Transactions Parity Act or RTPA and Marketplace Fairness Act or MFA) that would determine the simplifications a state must make to require online sellers to collect taxes. Such a law would be compatible with the Court`s judgment and would provide better protection for sellers and consumers. But some have spoken out against passing the laws, saying they would tax the internet. While the law casts a wide net on distance sellers, the safe harbor`s physical presence under Quill has limited the state`s ability to enforce its terms. Since this safe haven has disappeared, Section 212.0596 is limited only by whether a particular distance seller has a “substantial connection” to Florida among its unique facts.

How far this goes depends on whether lawmakers clarify what “genuine connection” means under Section 212.0596 and post-Wayfair guidelines adopted by the Treasury Department. Like VAT, VAT applies to sales, not profits. Each U.S. state establishes its own sales tax laws that businesses must follow if they have a connection in the state. 45 of the 50 states, as well as the District of Columbia, levy sales tax, and each state determines its own rates and which transactions are taxable. Within 48 hours of the ruling, lawmakers in nearly every state contacted the Tax Foundation to ask what changes they would have to make to their sales tax in order to levy taxes on online purchases.