States, courts, and online retailers have struggled for 20 plus years with the issue of whether states can force out-of-state retailers to collect and remit Internet sales tax. In June of 2018, the Supreme Court finally weighed in on the matter in a case known as South Dakota vs. Wayfair, Inc.
Quill Corp. vs. North Dakota
The United States Supreme Court is like most government agencies in many ways – it takes a long time to act, but usually upsets the apple cart severely when it does. Such is the case with cross-border sales. Under the Commerce Clause of the United States, states cannot assert taxes that unduly burden commerce across the country. This concept was thought to act as a natural cap on the ability of states to assert a right to charge and collect taxes beyond their borders.
In 1992, the Supreme Court heard a case known as Quill Corp. vs. North Dakota that addressed a fundamental question of whether states could tax out-of-state retailers or if doing so was excessively burdensome under the Commerce Clause. Quill was involved in the catalog game at that time. Remember, this is 1992. Pre-internet. People were forced into the horror of actually having to leave their homes to shop. Dating occurred in bars and at parties, not online. It was hell on earth!
Regardless, Quill and North Dakota got into a bit of a brawl over whether the company had to collect and remit sales tax on the sales generated through catalogs mailed to people in North Dakota. The Supreme Court ruled the company did not. The Court went on to establish that a state must show a physical “nexus” between a company and the state in question before tax obligations can be enforced on the company. Since Quill had no physical presence in North Dakota, it was held to have no obligation to collect and remit sales tax in the state.
South Dakota vs. Wayfair, Inc.
Quill was decided in 1992. As you’ve probably noticed, the world of commerce has changed a wee bit since the 1990s. We now live in the digital age where everything is available at the push of a button or click of a link. Give me convenience or give me death! However, the digitalization of the world is raising new questions about whether certain older legal concepts should be revisited. Sales tax has certainly been one area where there has been much teeth grinding and litigation. After avoiding the issue for twenty plus years, the Supreme Court “sprang” into action this summer and took up the question of whether Quill still makes sense in a digital world and, if not, what standards should be employed.
Let’s take a look at the decision: