June 22, 2018

Key Phrases From the Wayfair Decision and My Initial Reactions

Authored by Jordan Goodman

 in State & Local Tax (SALT)

My Initial Reactions in Bold.

5 to 4 decision.
Not surprising. Alito was the swing vote.

"Quill is unsound and incorrect."
Stare decisis basically stands for that premise.  You never have to rely upon stare decisis if the prior decision you were relying upon was and is still correct.

"Each year, the physical presence rule becomes further removed from economic reality."
True, but the rule has been in place for over 50 years and commerce has reasonably relied on it.

"Due Process and Commerce Clause standards may not be identical or coterminous, but there are significant parallels."
But they are different and the Supreme Court jurisprudence confirms that.  They serve different purposes and have different burdens.

"A small company with diverse physical presence might be equally or more burdened by compliance costs that a large remote seller."
Pitfalls for the unwary; some companies are just better than others.

"The physical presence rule is a poor proxy for the compliance costs faced by companies that do business in multiple states." 
But that is the rule that the USSC gave us in NBH and confirmed in Quill.  Also, you have no idea what the compliance costs are.  Doesn't every business have a constitutional right to the national market? And compliance costs can be a constitutional barrier.

"Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers."
But the state gives in-staters more benefits than remote sellers.  What benefits are states willing to give the remote sellers?

"Modern e-commerce does not align analytically with a test that relies on the sort of physical presence defined in Quill." 
But the world changed dramatically between the time NBH and Quill was decided. The number and size of catalog companies changed as dramatically as e-commerce has.

"But it is not clear why a single employee or a single warehouse should create a substantial nexus while "physical" aspects of pervasive modern technology should not."
I understand and may agree but shouldn't this be a Congressional action?  Isn't that what the commerce clause stands for.  Why is the USSC legislating from the bench?

"This Court should not maintain a rule that ignores these substantial virtual connections to the State."
This looks like our new constitutional standard.

"It is currently the Court, and not Congress, that is limiting the lawful prerogatives of the States."
But the Commerce Clause is the domain of CONGRESS.  If Congress wanted to change the standard the USSC establishes, it could or would have.  But Congress has, despite many opportunities to do so, not taken up the challenge.

"Eventually, software that is available at a reasonable cost may make it easier for small businesses to cope these problems."
Okay, lets stick it the small business and hope for a solution in the future.  Today, small businesses are just put in an awful position.

Final Thoughts

  • Case remanded to determine if other commerce clause issues to be resolved.
  • Retroactivity still unclear.  When does SD enforce use tax collection?
  • What is the nexus standard in states which have a different standard that SD, like cookie nexus in Massachusetts.
  • What is the standard in states that do not have a statute or regulation?  One sale? Significant virtual connections? The Due Process standard of purposeful availment?




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