In 1992, the U.S. Supreme Court case of Quill vs. North Dakota established the precedent that a state could not require a company to collect and remit sales tax without a physical presence within that state. However, internet and other remote sales that were in their infancy in 1992 have grown into a $400 Billion industry. States have been losing sales tax revenue for years and are now trying to either circumvent or directly challenge the precedent set by the Quill case.
Many states including Wyoming, Vermont, Tennessee, Maine, Indiana, Alabama, and South Dakota have enacted legislation directly challenging Quill’s physical presence standard by requiring any remote seller that exceeds a gross receipts and/or number of transactions threshold to collect and remit sales tax. Alabama and South Dakota’s statutes are being challenged in the courts and appear to have the greatest chance of reaching the Supreme Court of the United States. We believe the Supreme Court may be willing to hear one or both of the cases based on the following quote from Justice Kennedy in a 2015 case:
“There is a powerful case to be made that a retailer doing extensive business within a State has a sufficiently “substantial nexus” to justify imposing some minor tax-collection duty, even if that business is done through mail or the Internet… Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill.”
Nearly half of the states are trying to circumvent Quill by utilizing a concept called “Click-Through Nexus”. When applicable, Click-Through Nexus laws require out-of-state businesses (Remote Sellers) that have no physical presence in the ship-to-state to collect sales tax on internet sales shipped to purchasers located in that state. These laws are referred to as the “Amazon Laws”.
Another way states are trying to get around the Quill physical presence test is to increase use tax collection activity. Use tax requires a state’s resident to remit sales tax on purchases made from out-of-state vendors on which no tax was collected.
Colorado has a statute that requires remote sellers with $100,000 of gross sales in a calendar year to notify their Colorado customers of their sales and use obligations at the time of each sale. The remote seller must also send an annual purchase summary to any Colorado customer who made more than $500 of purchases in the prior calendar year. Additionally, the remote seller is required to send an Annual Customer Information Report to the Colorado Department of Revenue listing all purchasers who made more than $500 in purchases, their address, and the total dollar amount of reportable purchases. Colorado’s reporting requirements became effective on July 1, 2017. Several states have passed laws similar to Colorado’s. Some of the states mirror Colorado’s law and some have less onerous reporting requirements.
States believe they are losing billions of dollars on untaxed sales due to the sales tax collection restrictions imposed by Quill. State budgets are under significant fiscal pressure, which will likely cause states’ to continue to aggressively pursue strategies to expand their sales tax base.
Have questions on your company’s sales tax collection responsibilities? We’re happy to help. Just contact you Blue & Co. representative or email Paul Roth at proth@blueandco.com.
