The California Attorney General filed an amicus brief to urge the U.S. Supreme Court to reconsider the Court’s physical presence rule for sales and use tax. The rule restricts the ability of states to collect use taxes from out-of-state retailers. Attorney General Xavier Becerra joined a bipartisan coalition of 36 attorneys general in filing the amicus brief.
National Bellas Hess and Quill
In National Bellas Hess, Inc. v. Dept. of Revenue of Illinois, 386 US 753, the U.S. Supreme Court concluded that a mail order company could not be forced to collect Illinois use tax on sales made to customers in Illinois, because the corporation’s only activity in Illinois consisted of soliciting sales by catalogs and flyers followed by delivery of the goods by mail or common carrier. The decision rested on both Due Process and Commerce Clause considerations.
The position taken in Bellas Hess that physical presence is required to meet the requirements of the Commerce Clause was specifically reaffirmed by the High Court in Quill Corp. v. North Dakota, 504 US 298. However, Quill overruled the Bellas Hess due process objections, holding that physical presence is not required by the Due Process Clause before a state can compel an out-of-state mail-order company to collect its use tax. With the Bellas Hess due process objection removed, the Court noted that Congress is now free to decide whether, when, and to what extent the states may burden out-of-state mail-order concerns with a duty to collect use taxes.
South Dakota Law
South Dakota legislation enacted in 2016 required remote sellers with no physical location in the state to remit sales tax, as if they had a presence in the state, if, in the previous calendar year or the current calendar year they had:
- an annual sales threshold of $100,000; or
- 200 separate sales transactions into South Dakota.
However, the legislation also provided for an automatic injunction if the law was challenged in court. A challenge invoking the injunction was filed on April 28, 2016. The injunction remians in effect throughout the court case.
South Dakota Supreme Court Ruling
The law was struck down by the South Dakota Supreme Court because it directly conflicted with the U.S. Supreme Court ruling in Quill. Moreover, only the U.S. Supreme Court can reconsider its own precedents. South Dakota filed a petition for writ of certiorari asking the U.S. Supreme Court to revisit the matter, and California Attorney General Becerra supports South Dakota’s effort.
Attorney General Becerra filed today’s brief along with the Attorneys General of Colorado, Alabama, Arkansas, Connecticut, Florida, Hawaii, Illinois, Idaho, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Vermont, Utah, Washington, Wisconsin, Wyoming, and the District of Columbia.
News Release, California Department of Tax and Fee Administration, November 3, 2017