In the decades since the physical presence nexus standard for use tax collection was established by the U.S. Supreme Court decision in Quill Corp. v. North Dakota in 1992, electronic commerce has grown to enormous proportions. Alvarez and Marsal, Taxand USA, presents an analysis on contemporary nexus battles for sales tax collection.
Thanks to the physical presence rule established for remote sellers in Quill, many online sellers have not been required to collect tax in all states where the seller has customers. Some say online sellers have an unfair advantage over brick and mortar sellers who cannot escape the requirement to collect tax. While states have long waited for Congress to step in to legislate a solution, such proposed legislation rarely gains traction in Congress. With the U.S. Supreme Court now having agreed to hear the South Dakota v. Wayfair, Inc., case, the Quill physical nexus standard and the various means by which states have sought to make end-runs around that standard, may all soon change. What should remote sellers do in the meantime?
In recent years, states have reacted with increasingly innovative tactics to better capture the commerce directed toward their marketplaces. They have tried various approaches to attributing a physical presence to online sellers and, more recently, have passed legislation designed to directly challenge the Quill decision. On Friday, January 12, 2018, the U.S. Supreme Court granted certiorari in South Dakota v. Wayfair, Inc.Later this year, the Supreme Court will render a decision in South Dakota v. Wayfair, Inc. that may modify the Quill decision, allow it to stand, or overturn the decision entirely. In the meantime, remote sellers must contend with the already unwieldy physical nexus rules as well as various approaches that have been developed by select states in conferring use tax nexus, which are outlined below.
Discover more: Contemporary nexus battles for sales tax collection
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Now is the time for remote sellers to revisit their current use tax nexus profile, determine and quantify any use tax exposure that may exist, make plans to re mediate such exposure, and plan for a potential Wayfair decision in which the seller may face the burden of having to comply with use tax in more jurisdictions. Preparations such as planning for the implementation of a new sales tax solution or optimising a current sales tax solution, as well as updating policies and procedures for controlling use tax and obtaining exempt documentation from customers, will require consideration.
