US Supreme Court overturns Quill precedent: what it means for retailers

 

By Michael Bernard & Nancy Manzano, Vertex Inc.

Today, the US Supreme Court overturned its 1992 Quill v. North Dakota ruling, changing the physical presence requirements for sales and use tax collection for online sellers, out-of-state merchants, and global companies selling to US-based customers.

With the rapid rise of e-commerce, the Supreme Court in Wayfair elected to reverse the Quill decision based on changes to underlying business models and the consideration that online businesses should not be favored over brick and mortar retailers.

In the last decade, states have expanded their taxing authority through different approaches, including seller reporting and either affiliate or agency nexus laws.

Some states have already introduced regulations to require the collection of sales and use tax, such as South Dakota’s 2016 economic nexus legislation. Bound by the Quill precedent, they have not been able to implement them, but today’s reversal of Quill allows those jurisdictions to immediately enforce such laws.

Prior to Wayfair, there were a few attempts to address online sales taxation at the federal level, such as the Marketplace Fairness Act, Main Street Fairness Act, No Regulation Without Representation Act, Remote Transactions Parity Act, and Online Sales Simplification Act.

However, Congress hasn’t passed any legislation since Quill was decided in 1992, despite strident appeals from states and bricks-only retailers. 

While the court did not affirm South Dakota’s specific thresholds, businesses that generate more than 200 online transactions or that have sales of more than $100,000 annually could now be required to collect sales tax in up to 45 states.

The existing compliance burden will escalate significantly, especially for companies that have no reporting capabilities.

Companies that sell remotely into jurisdictions where they are not collecting and reporting need to review their current tax processes to make sure they can accommodate the new requirements. Technology that automates end-to-end sales and use tax management from calculation to returns and remittance will be a critical compliance resource.

–Michael Bernard is Chief Tax Officer – Transaction Tax at Vertex Inc. He can be reached at [email protected].

— Nancy Manzano is a Director in the Chief Tax Office at Vertex Inc. Her email is [email protected].