A&M Tax Advisor Weekly
1980’s movie lore can be instructive. The high point in classic ‘80’s movies is often a house party grown to enormous proportions, at the height of which the authorities arrive to break it up. The Quillphysical presence rule will likely be remembered by a generation of remote sellers as being great while it lasted until the Wayfair decision came along to break it up. What should be done now? If Congress will not act to impose a semblance of order, such as dusting-off the Marketplace Fairness Act legislation, use tax nexus analyses are now subject to the same nexus standards as any other type of state tax. Regardless of when or if Congress will act, there is, much like the post-party clean-up scene of an ‘80’s movie, work to be done.
Background: The Quill Era
In the “Quill era,” a remote seller was obligated to collect a state’s use tax if it had the required physical presence in that State. National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U. S. 753 (1967); Quill Corp. v. North Dakota, 504 U. S. 298 (1992). The physical presence standard for use tax nexus was a simple national standard for remote sellers to remember, even as the Digital Age brought increasingly clever state workarounds and interpretations to bear on the standard. Except for Public-Law 86-272, applicable only to income-based taxes under certain circumstances (which also has had and still enjoys a long run), use tax was the state tax that had a national nexus standard which the average business person could quickly grasp. With the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., et al, 585 U.S.__ (2018) on June 21st, the Quill era has ended.
Unless the United States Congress acts, a remote seller’s requirement to collect a state’s use tax remains subject to the standards set forth in Complete Auto Transit, Inc. v. Brady, which govern the Constitutionality of tax – any type of tax – on interstate commerce. Complete Auto held that a tax in interstate commerce will be sustained “so long as it (1) applies to an activity with a substantial nexus with the taxing State, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to the services the State provides. Complete Auto Transit, Inc. v. Brady, 97 S. Ct 1076 (1977).