South Dakota is taking the physical presence rule back to our nation's highest court in its dispute with Wayfair, Inc., to determine whether it may continue to require out-of-state sellers such as online retailers to register with the state and collect and pay over sales tax. In the seminal case from 1992, Quill Corp. v. North Dakota, the U.S. Supreme Court ruled that retailers did not have to collect sales tax in any state where they have no physical presence. However, the exponential growth of eCommerce and internet sales has significantly changed the retail landscape since that time.
If Congressman Jim Sensenbrenner (R-WI) and House Judiciary Chairman Bob Goolatte (R-VA) get their way, it will. On June 12, 2016, Sensenbrenner and Goolatte introduced the "No Regulation Without Representation Act of 2017" which would expand the "physical presence" requirement of a similar 2016 House Bill (H.R. 5893) to all taxes and to all regulations in general.
California Rev. and Tax Code section 23101 defines what it means to do business in California, including a sales threshold for taxpayers not physically located in the state. A taxpayer is considered to be doing business in California "if it actively engages in any transaction for the purpose of financial or pecuniary gain or profit" where any one of a number of conditions are satisfied, including having $54,771 in real and tangible personal property (originally $50,000), $54,771 in payroll (originally $50,000), and $547,711 in sales (originally $500,000) in the state for taxable year 2016.
Not surprisingly, a recent declaratory action has challenged South Dakota's bold move to require many out-of-state sellers to register with the state and begin collecting sales tax (previously discussed here). American Catalog Mailers Associations and NetChoice v. Gerlach questions the constitutionality of the economic nexus legislation based upon the physical presence rule from Quill Corp. v. North Dakota.
Recently, Forbes magazine named South Dakota as one of the top 10 states for business, particularly since it ranked number one in the cost of doing business. A new state law will likely keep South Dakota in first place for in-state business statistics, to the detriment of out-of-state sellers. Last month, South Dakota Governor Dennis Daugaard signed into law a bill that requires many out-of-state sellers to register with the state and begin collecting sales tax. All sellers conducting more than 200 transactions with South Dakota purchasers, or making more than $100,000 in gross sales to South Dakota, must register with the state.
California and the other 49 states could soon collect millions of dollars from online sales taxes. Last week, Reuters News reported that U.S. House and Senate introduced the Marketplace Fairness Act of 2013 (The Bill). This is Indeed, a remarkable turn of events, given the often toxic relations between the House and Senate. Lawmakers finally appear to be in agreement that the time has come for the States to be permitted to collect sales and use taxes from remote sellers, and have recently assured state lawmakers they would pass a law in 2013.
On November 20, 2012, a Michigan Court of Appeals ruled that the Multistate Tax Compact (MTC) election is not available for Michigan taxpayers. The Court of Appeals affirmed the lower court's decision that IBM could not elect to apportion its income according to the three-factor MTC formula. The Court held that under apportionment, the Michigan Business Tax (MBT) is mandatory and "the possibility of electing a different apportionment formula as a matter of right is simply not permitted." The court held that the mandatory language of the later enacted MBT repealed the MTC election by implication.
The Bureau of National Affairs (BNA) has published an article which argues that the activities involved in selling intangible goods, such as songs and digital books, by means of the Internet are not sufficiently connected to states so as to permit states to tax them. The article confines its analysis to an explication of Commerce Clause "nexus," but it also asserts along the way that the selling of intangibles on the Internet may also be protected from taxation by the Due Process Clause.