Delivering for Best-in-Class Wholesaler-Distributors
November 1, 2019

Twenty-five years ago in Quill v. North Dakota, the U.S. Supreme Court ruled that the lack of a physical presence (“substantial nexus”) in a State by an out-of-state seller prevents that State from compelling the remote seller to collect and remit that State’s sales tax. In its 1992 decision in Quill, the Court invited Congress to resolve this issue, stating, “The underlying issue here is one that Congress may be better qualified to resolve and one that it has the ultimate power to resolve.”

The issue has been the subject of Congressional attention for several years. In 2013, the U.S. Senate passed the NAW-supported Marketplace Fairness Act (“MFA”), however, the House consideration of the MFA was successfully blocked due to the opposition of then Chairman of the House Judiciary Committee, Rep. Bob Goodlatte (R-VA-6) and several House conservatives. A modified version of the MFA authored by former Rep. Jason Chaffetz (R-UT-3) and supported by NAW (the Remote Transactions Parity Act (“RTPA”) also failed to advance.

Litigation:

South Dakota v. Wayfair: At issue was the validity of a South Dakota statute requiring sellers with “economic nexus” to collect and remit state sales tax regardless of physical nexus. South Dakota acknowledged the statute in question runs afoul of the standard enunciated in Quill.  (A parallel case challenges the validity of the South Dakota statute on the grounds that it violates the Federal Constitution’s Commerce Clause and due process guarantees.)  In 2017, a Federal District Court rejected the companies’ request that the case be heard in Federal court, and in early March of that year the State court ruled as expected against the South Dakota law on the basis of Quill.  The South Dakota Supreme Court found the statute invalid on September 14, 2017, and the State filed a petition seeking U.S. Supreme Court review on October 2, 2017.  On October 23, 2017, NAW filed an amicus curiae brief in support of South Dakota’s petition which was subsequently granted.  Oral argument was heard in the Supreme Court on April 17, 2018.  NAW was one of 23 parties to an amicus curiae brief in support of South Dakota’s position in this case.

On June 21, 2018, the Supreme Court handed down a decision in the Wayfair case overturning the Quill decision allowing states to require out-of-state/on-line sellers to collect state sales taxes. This was a huge victory for our brick-and-mortar businesses. As of Jan. 1, 2019, over 30 states have begun implementing and collecting sales tax from online sellers and more states are expected to begin collection once they come back into their legislative sessions this year.

So far, no new legislation has been introduced in the 116th Congress to address this issue and Rep. Jerry Nadler (NY-19), the new Chairman of the House Judiciary Committee, has indicated that he will not intervene in the Supreme Court’s decision.

For more information, see NAW’s Legal Update.

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