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US Supreme Court to Review Physical Presence Requirement for Sales, Use Tax Collection

The US Supreme Court agreed to hear South Dakota’s challenge to Quill Corp. v. North Dakota, setting the Court up to decide whether a retailer with no physical presence in a state is required to collect and remit sales and use tax.

In agreeing on January 12, 2018, to hear South Dakota v. Wayfair, Inc.,[1] South Dakota’s challenge to the US Supreme Court’s 1992 decision in Quill Corp. v. North Dakota,[2] the Court will now reconsider whether a state may require a retailer without physical presence in the state to collect and remit sales and use tax.

In Quill, the Court interpreted the Commerce Clause in the US Constitution to hold that physical presence in a state is a prerequisite to requiring a taxpayer to collect and remit the state’s sales and use tax. States have long urged the Supreme Court to reconsider its decision because the lack of widespread physical presence among ecommerce/online retailers has changed the landscape of the consumer economy. States have also, for the most part, moved away from applying a Quill “physical presence” standard to taxes other than sales and use taxes. While Justice Anthony Kennedy recently noted that “it is unwise to delay any longer a reconsideration of the court’s holding in Quill,”[3] the Court’s decision to grant certiorari in the Wayfair case still comes as a surprise to many taxpayers.

By taking up Wayfair, the Court signals that a change to the decades-old “physical presence standard” is, at minimum, under active consideration. And whether Quill is overturned, refined, or affirmed, the impact will likely be far reaching. 


[1] South Dakota v. Wayfair, Inc., No. 17-494.

[2] Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

[3] Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124, 1134 (2015) (Kennedy, J., concurring).

Copyright © 2022 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VIII, Number 18
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About this Author

Donald-Bruce Abrams, Morgan Lewis, Tax attorney
Partner

Donald-Bruce Abrams’ practice primarily focuses on advising corporations, partnerships, and individuals on federal, state, and international tax controversy and transactional tax planning matters. His transactional practice includes advising clients on structuring and negotiation of mergers and acquisitions; equity and debt financing transactions; and transactions involving the structuring, formation and operation of specialized investment entities (including domestic and foreign hedge funds, regulated investment companies and real estate investment trusts). Don’s...

617.951.8584
Justin Cupples, Morgan Lewis, Tax attorney
Of Counsel

Justin D. Cupples focuses his practice on providing the highest quality State and Local Tax (SALT) counsel and advocacy to Fortune 500 companies and large multistate organizations. Justin obtains significant state tax savings for his clients by developing and implementing state tax return positions, defending state tax audits, and advocacy through administrative appeals and litigation.

1.215.963.4911
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