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Quill Killed! Court Overrules Physical Presence Requirement

author photo of Jerry Donnini

On June 21, 2018, the Supreme Court decided the most important tax case in nearly three decades, overruling the physical presence requirement outlined in prior cases. The Supreme Court previously ruled that an out of state seller’s liability to collect and remit the tax to the consumers state depended on whether the seller had a physical presence in that state, but that mere shipment of goods into the consumer’s state, did not satisfy the physical presence requirement. In essence, Quill served to essentially create an online sales tax loophole that gives out of state businesses an advantage.

The South Dakota law was crafted to challenge Quill as the law requires out of state sellers to collect and remit sales tax as if the seller had a physical presence in the state. The law applies only to sellers that, on an annual basis, deliver more than $100,000 of goods or services into the state or engage in 200 or more separate transactions for the delivery of goods or services into the state. The Supreme Court of the United States ruled in favor of South Dakota and against Wayfair.

Now, practitioners and businesses alike are left wondering what exactly this ruling means prospectively as well as retroactively. Some are taking the position that states can now tax sales made into their state broadly, regardless of whether the seller has a physical presence or not. Others have interpreted the holding to mean that states can tax sellers without a physical presence only as broadly as the South Dakota law does, but no more. Many are also curious if Congress will still pass laws more specifically identifying the states reach as far as nexus.

This ruling is a double-edged sword. Of course, states are pleased because this ruling means additional transactions the states can reach. Many brick and mortar businesses are happy about the decision, as this should level out the playing field. However, now businesses that have an online presence most likely have nexus in all states they do business in. Additionally, each state will now have its own law as far as what creates nexus, which will make compliance burdensome for multistate online retailers. It will be interesting to follow how both the states and businesses respond to this case.

If your business makes sales into any state in the U.S. and you have an online presence, this ruling affects you. If you'd like additional information regarding the tax implications - and how this ruling may affect your business - please reach out to me. Contact options listed below - or view my BIO page.

About the Author: Mr. Donnini is a multi-state sales and use tax attorney and a shareholder in the law firm Moffa, Sutton & Donnini, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini earned his LL.M. in Taxation at NYU. He is also a co-author of the CCH Expert Treatise Library: State Sales and Use Taxation. Please feel free to visit his firm’s web-site or his blog .

Questions? If you have any questions please do not hesitate to contact him via email at JerryDonnini@FloridaSalesTax.com or call 954-642-9390.

Other recent “Sales Tax Nexus” posts by Jerry Donnini:

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