Thomson Reuters has released a Checkpoint Catalyst special report, Navigating the “Kill Quill” Revolt: Considerations for Remote Sellers, to help businesses understand their current sales and use tax liabilities and predict future ones as states increasingly defy federal case law by imposing sales and use taxes on businesses that lack a physical presence in a state but make sales to customers there. The report offers timely context in light of the U.S. Supreme Court’s agreement to hear a case that could upend longstanding constraints on sales and use taxes. The Court has scheduled oral argument for April.
The U.S. Constitution prevents states from requiring a remote seller to collect sales or use tax in a state unless the business has a strong enough connection to the state. Determining whether this connection, or nexus, exists has become increasingly difficult, with a growing number of states in full revolt against the landmark U.S. Supreme Court nexus case, Quill Corp v. North Dakota (1992). The Quill Court established the physical presence requirement for sales and use tax nexus while ruling that a mail-order office supply company making sales to North Dakota customers did not have substantial nexus with the state. Now the Court has granted certiorari in South Dakota v. Wayfair, calling Quill into question.
The report explains the legislative and other approaches that states are taking to assert economic nexus against remote sellers. Most states concede that the “economic presence” laws they’ve enacted disregard the physical presence standard enunciated by the U.S. Supreme Court in Quill. These laws, regulations, and/or directives are based on the dollar amount or number of sales into the state. They build on popular nexus expansion tactics of recent years, such as click-through and affiliate nexus laws. A small number of states take the position that asserting nexus against internet sellers based on sales into the state meets the Quill standard, on the theory that apps and Internet cookies stored on a customer’s device in the state constitute a physical presence.
“This report will help remote sellers to gain some clarity into the actions of states which continue to demonstrate that they are not content to accept the status quo of physical-presence nexus,” said Salim Sunderji, managing director, Checkpoint, with the Tax & Accounting business of Thomson Reuters. “While the Supreme Court’s future decision is unknown, companies will do best to prepare themselves for potential new tax and accounting laws and regulations and the possibility that the Court could reverse Quill.”
The report also addresses the rise of notice and reporting requirements for remote sellers, which federal case law suggests are constitutional. “Several states have effectively enacted economic nexus by adopting highly detailed notice and reporting requirements and offering sales and use tax collection as an alternative,” said Rebecca Newton-Clarke, a Checkpoint Catalyst senior editor, who wrote the report. “Some businesses may conclude that registering to collect tax would be the less burdensome option.”
Also covered are nexus questions arising from “pure e-commerce” transactions such as software downloads, cloud computing, streaming entertainment, and more.
The report discusses economic nexus cases that are making their way through state and federal courts as states try to persuade the U.S. Supreme Court to reconsider its previous nexus rulings amid a business environment that is increasingly shaped by e-commerce. In turn, companies are advised to prepare for a potential post-Quill world by adopting relevant bookkeeping and other best practices to ease the burden of compliance.
Thomson Reuters Checkpoint Catalyst is a collection of multijurisdictional analyses of specific tax issues and business transactions from a practical, workflow perspective, covering implications at the federal, state and international levels. Related topics in the Checkpoint Catalyst library include:
- Topic # 1050, Sales & Use Tax: Nexus
- Topic # 1051, Sales & Use Tax: E-Commerce
- Topic # 1054, Sales & Use Tax: The “Cloud”
- Topic # 1055, Sales & Use Tax: Information Services
To download the special report, visit the Checkpoint website.
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