We have been closely following the rapid rise of state laws and regulations imposing sales tax nexus or reporting requirements on out-of-state sellers with no physical presence in the state. In the wake of decisions by the U.S. Supreme Court and the U.S. Court of Appeals for the Tenth Circuit in cases brought by the Direct Marketing Association (see prior coverage), states have felt emboldened to enact provisions that challenge the Supreme Court’s holding in Quill v. North Dakota, which demands that a seller have physical presence in a state before the state can require the seller to collect sales and use tax.
Now that legislative sessions in many states are winding down, we thought it would be a good time to take stock of where we stand. So far, six states have enacted some sort of sales tax obligation on sellers with no physical presence, with Louisiana having done so just last week. In addition, Tennessee has proposed, but not yet adopted, a regulation imposing nexus on out-of-state sellers. These measures are of two types: (i) economic nexus provisions that require out-of-state sellers to collect and remit sales tax if their sales into the state meet certain thresholds and (ii) reporting provisions that require sellers to notify the state that in-state customers have made taxable purchases. The chart below gives an overview of these provisions. Nebraska, Rhode Island, and Utah considered and failed to pass economic nexus or reporting provisions for out-of-state sellers in 2016.
We also note legal challenges to the provisions of South Dakota and Alabama. Both South Dakota and out-of-state retailers selling into South Dakota have filed litigation addressing the state’s new sales tax nexus law (see prior coverage of the law). South Dakota filed for declaratory judgment to enforce the measure against Wayfair Inc., Systemax Inc., Overstock.com Inc., and Newegg Inc. on April 28. Meanwhile, the American Catalog Mailers Association and Netchoice filed for declaratory judgment against the state to block the measure on April 29.
In Alabama, Newegg Inc. filed a notice of appeal to the Alabama Tax Tribunal of the company’s sales tax assessment under the state’s economic nexus regulation. In the appeal, filed June 8, Newegg argues that its assessment violates Quill as well as the state’s own sales tax statutes.
We will stay tuned to this litigation.
[View source.]
