1980’s movie lore can be instructive. The high point in classic ‘80’s movies is often a house party grown to enormous proportions, at the height of which the authorities arrive to break it up. The Quill physical presence rule will likely be remembered by a generation of remote sellers as being great while it lasted until the Wayfair decision came along to break it up.
What should be done now? If Congress will not act to impose a semblance of order, such as dusting-off the Marketplace Fairness Act legislation, use tax nexus analyses are now subject to the same nexus standards as any other type of state tax. Regardless of when or if Congress will act, there is, much like the post-party clean-up scene of an ‘80’s movie, work to be done.
Background: The Quill Era
In the “Quill era,” a remote seller was obligated to collect a state’s use tax if it had the required physical presence in that State. National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U. S. 753 (1967); Quill Corp. v. North Dakota, 504 U. S. 298 (1992). The physical presence standard for use tax nexus was a simple national standard for remote sellers to remember, even as the Digital Age brought increasingly clever state workarounds and interpretations to bear on the standard. Except for Public-Law 86-272, applicable only to income-based taxes under certain circumstances (which also has had and still enjoys a long run), use tax was the state tax that had a national nexus standard which the average business person could quickly grasp. With the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., et al, 585 U.S.__ (2018) on 21 June, the Quill era has ended.
There will be more news to come when South Dakota Supreme Court revisits the Wayfair case on remand, as instructed by the U.S. Supreme Court. If the remanded Wayfair case is ultimately held constitutional, South Dakota’s law would then stand unless Congress acts. In this instance, a possible outcome is that states with similarly designed use tax nexus laws, even if untested by their own state Supreme Courts and the U.S. Supreme Court, may come to be regarded as having acceptable standards for use tax nexus purposes; particularly when such states are Streamlined Sales Tax Agreement member states, as is South Dakota. This issue appeared to be a point in South Dakota’s favour to the U.S. Supreme Court.