Many questions concerned the effect on small businesses of keeping Quill Corp. v. North Dakota, 91-0194), 504 U.S. 298 (1992) in place versus overturning it.
Another recurrent theme was whether Congress, not the Court, should take action to address the physical presence standard in Quill.
The justices, expected to rule on the case by late June, issued a slip opinion overruling Quill in South Dakota v. Wayfair on June 21, 2018.
Small Businesses: Compliance Costs
Wayfair argued that the costs for small businesses in complying with sales tax collection in the absence of Quill would hurt small businesses. The justices expressed some skepticism on this point. Justices Sotomayor and Breyer were not convinced that the data given in the briefs gave a clear financial picture of what compliance costs would look like. Justice Gorsuch asked for information on which is more of a burden for small businesses, complying:
- with sales tax collection in many jurisdictions; or
- use tax notice requirements like those in Colorado?
Justice Ginsburg even mentioned tax compliance software as a solution for small businesses.
In addition, Justices Kagan and Ginsburg touched on the argument that the physical presence standard puts small, in-state businesses at a disadvantage. Small in-state businesses must pay and collect tax but out-of-state small businesses, selling over the Internet, do not.
Removing the standard, however, would also harm small businesses if they wanted to maintain or expand their markets into other states. The increased cost of sales tax compliance would, arguably, be highly prohibitive to these small businesses.
Congress Should Address the Issue
Much of the questioning for South Dakota implied Congress should take action on this issue and not the Court. The justices questioned whether South Dakota’s issue actually concerned a change to the physical presence standard or its inability to collect use tax. Further, if a change to the standard is in order, Congress should set the standard for nexus.
Justice Breyer pointed out that Congress can act to address the issue in Wayfair. Quill was not a constitutional decision that required the Court’s intervention.
Justice Roberts wanted to know what the “constitutional minimum” would be for imposing sales tax collection rules on out-of-state sellers. South Dakota responded that there would be none if an exception to Quill were made for internet sales, but that a minimum standard would be a good idea. Justice Kagan noted that a need for a constitutional standard for nexus is essentially why the Court should leave the question for Congress. Further, if the Court did overrule Quill, where would the states’ incentive be to encourage Congress to create a minimum standard?
Wayfair did not disagree that Congress should take action on the issue. However, it argued that Quill should be left alone. Even if the physical presence standard in Quill were wrong, thousands of companies have structured their businesses relying on Quill.
What Will the Court Decide
Overturning Quill could invite compliance chaos as suggested by Wayfair, but it could also equalize sellers who exploit the market in the state.
Either way, it appears everyone hopes Congress will step in and provide guidance.
Transcript of Oral Arguments for South Dakota v. Wayfair, Inc., Docket No. 17-494, U.S. Supreme Court, April 17, 2018