Despite being at odds with the “physical presence” test established by the U.S. Supreme Court in Quill Corporation v. North Dakota, states are continuing to enact legislation requiring certain “remote sellers” to collect sales tax on in-state sales. The newest states to join the “kill Quill” movement are Maine and Ohio, who both enacted legislation in June. This type of legislation is being used as a push for the U.S. Supreme Court to reconsider the physical presence rule, which has been in effect since 1992.
Similar to rules adopted in other states over the past two years, the new legislation in Maine and Ohio requires out-of-state sellers who meet a certain sales threshold to register with the state and begin collecting sales tax, despite the sellers having no in-state presence. Ohio’s law H.B. 49 was signed by the governor on June 30, 2017 and sets the annual sales threshold at $500,000. The law will officially go into effect on January 1, 2018. Maine’s new law requires sellers with more than $100,000 of prior year in-state sales to register for sales tax collection beginning on October 1, 2017. Regardless of the value of in-state sales, Maine’s law will also require remote sellers to collect the state’s sales tax if they had at least 200 separate taxable sales delivered to Maine in the prior year.
Maine’s law, similar to legislation enacted in South Dakota last year, provides for a fast-track judicial review. This means that the state can bring a declaratory judgement action against a taxpayer prior to the issuance of an assessment or audit. All appeals will go straight to the state supreme court. In South Dakota, a trial court ruled in favor of the remote sellers during a fast-track judicial review because they lacked physical presence in the state, a requirement established under Quill. In March, the state filed an appeal of the trial court’s decision with the state supreme court.
In addition to Maine, Ohio, and South Dakota, similar “remote seller” sales tax collection rules have already been established in Alabama, Massachusetts, Tennessee, Vermont, and Wyoming. Massachusetts recently revoked their administrative directive in favor of more formally adopted regulations. With a growing number of states implementing remote seller provisions, and South Dakota already set to address the constitutionality issue in its highest court, it seems prudent for the U.S. Supreme Court to step in and end what is an uncertain environment for retailer’s torn between complying with these rules or hanging their hat on Quill. With Justice Kennedy already stating in his concurring opinion in Direct Marketing Association v. Brohl that “the legal system should find an appropriate case for th[e] Court to reexamine Quill,” it seems like only a matter of time before the “kill Quill” movement achieves its goal of having the physical presence test reevaluated.
If you have any questions regarding your sales tax collection obligations, please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6200.