Multistate Challenges to Quill Physical Presence Standard: Navigating Nexus in State Sales and Income Tax

Description

As the retail sales landscape continues to change from in-store purchases made from brick-and-mortar locations, states are constantly seeking ways to make up sales tax revenue shortfalls. A significant component of these efforts is comprised of states seeking ways to impose sales tax jurisdiction over internet-based sales shipped to individuals within their states. However, states have been limited in their tax reach by the "physical presence" standard articulated in Quill v North Dakota. Several states have enacted statutes, regulations or administrative guidance to try to challenge or reinterpret Quill, through alternate economic or factor presence standards.

For nonresident companies making sales into those states seeking to challenge Quill, these efforts present significant reporting, collection and remittance challenges, as well as uncertainty as to whether they should comply with these questionably constitutional laws. Tax advisers are constantly faced with the task of keeping up with various states' interpretations of just what constitutes taxable "presence," beyond the traditional understanding of what the Supreme Court held as physical presence.

Tax advisers should be keenly aware of the status of various state initiatives. South Dakota will almost certainly appeal its loss in Wayfair to the Supreme Court, and several other states including Alabama have pending challenges as they also seek to broaden tax jurisdiction to cover internet sales. Despite these constitutional challenges, several states have introduced and enacted factor presence economic nexus legislation during the first half of 2017, including Indiana, Maine, North Dakota and Wyoming.

Listen as our experienced panel provides a current update on key states' initiatives to circumvent or challenge the long-established Quill standard of physical presence as a prerequisite to imposing state sales or income tax.