The Supreme Court issued a 5-4 decision overruling its long-standing physical presence rule in South Dakota v. Wayfair this morning. That decision provides welcomed relief to states (and to those of us who already pay use tax) and will have significant short- and long-term consequences. My reactions to Wayfair will surely extend for a long period of time, but here are some brief first thoughts.

The Basics

The Court’s holding was very limited: the physical presence rule no longer governs the determination of what constitutes a “substantial nexus” under the dormant Commerce Clause. The Court also found that nexus existed in the case based on the challengers’ connections with South Dakota. Finally, the Court did not bless the South Dakota statute completely, but remanded the decision back to the South Dakota courts to hear non-nexus based challenges to the law, if any exist.

What this means is that states will be able to continue (or expand) their efforts to require the collection of sales/use tax by online vendors. States will also need to monitor whether and how Congress responds, but they should be able to craft their laws to avoid state-court scrutiny until that time.

Continue reading “South Dakota v. Wayfair: First Impressions” →

By Adam Thimmesch

The major question presented in South Dakota v. Wayfair is whether the Supreme Court should overturn its long-standing physical presence limitation on state taxing power. (I believe that it should, as do most people who have studied the issue.) One of the secondary issues presented in Wayfair is whether the Court could apply such a repeal on a prospective basis only or whether a repeal would have to apply retroactively. Daniel Hemel had a great post introducing this issue last month, but I think that it is worth adding another dimension to the analysis.

The retroactivity issue presents itself as obvious in some respects—why couldn’t the Court issue a prospective only decision? And yet, this issue has troubled the Court, and it appeared as a consideration in Quill itself. The retroactivity issue is also being addressed in the briefs in the case (South Dakota’s merits brief was filed on Monday), and the Court is sure to bring up the issue in oral arguments in April. It seems possible that the Court would have enough votes to overturn Quill on its merits, but that no clear majority would appear regarding the retroactivity of its holding. Worst case, disagreement about that issue could cause some Justices to get cold feet on the primary issue. For these reasons, it is worth exploring retroactivity from a couple of different angles.

Continue reading “Undue Burdens and the Retroactivity Issue in Wayfair” →

By Adam Thimmesch

The Supreme Court announced this afternoon that it will hear arguments in South Dakota v. Wayfair, the anti-Quill case that has been fast tracked for the Supreme Court since 2016. That decision means that the physical-presence rule, long-abhorred by states and tax academics, might be coming to an end. Of course, a reversal is not certain, and the Court could uphold that rule after hearing the case on the merits. Regardless of the ultimate outcome, however, the Court agreeing to hear it means that those involved in state taxes will have plenty to write about in the coming months.

Continue reading “Supreme Court Agrees to Hear South Dakota v. Wayfair (!)” →

By Adam Thimmesch

Much of the tax world is currently focused on federal tax reform, and rightfully so. The speed with which the Republicans are pushing a bill through Congress has required an intense burst of attention, and academics evaluating the bill have already noted and written on number of glitches and loopholes in the current bills. (Full paper here.) While this is all occurring, though, a significant case is being pitched to the U.S. Supreme Court—South Dakota v. Wayfair. That case involves the Court’s physical-presence rule and the ongoing fight between states and retailers regarding the collection of use tax on online sales. This could be one of the most significant state tax cases heard by the Supreme Court in decades. Unfortunately, it is fighting for press against federal tax reform. Bad timing.

I’ve blogged about this dispute before, so I don’t want to rehash all of the history of Quill and the issues related to collecting use taxes on online commerce. However, both the Petition for Writ of Certiorari and the Respondents’ Brief in Opposition have now been filed (the Petition was filed by the State of South Dakota on October 2nd and the Respondents’ Brief in Opposition was filed last Thursday), so I thought that it might be helpful to summarize the major arguments made by both sides in their filings and to foreshadow some of the arguments to come. (Warning, this gets long even as a summary…)

Continue reading “Opening Volleys in South Dakota v. Wayfair” →

By Adam Thimmesch

The Supreme Court of South Dakota heard oral arguments in South Dakota v. Wayfair, Inc. earlier this week. That case involves a challenge to a South Dakota statute that requires vendors to collect the state’s use tax based solely on their economic connections with the state—a requirement that seems to directly contradict the rule embraced by the Supreme Court in Quill Corporation v. North Dakota. What was unusual about the case is that the state argued that it should lose. You don’t run into that every day.

Continue reading “Winning by Losing? Getting the Supreme Court to review Quill.” →