Since the U.S. Supreme Court’s decision in Quill v. North Dakota more than 24 years ago, states have been focused on addressing the ability to force a vendor to collect tax in their state in the absence of a physical presence as required by Quill. The fundamental basis for the decision is that in the absence of a physical presence, it is too burdensome for a remote vendor to collect a state’s sales tax. Of course, Quill empowered Congress to enact enabling legislation, but it has refused to do so.
So what have the states done? They have moved on multiple fronts to force the issue and enhance their revenue including:
- The Streamlined Sales Tax Agreement (“SSTA”) initiative, which is predominately a consortium of stats to provide uniform rates, definitions and compliance. The premise is that by easing compliance, those member states of the SSTA are being less burdensome on commerce.
- Required reporting by vendors to the state taxing jurisdictions of sales they have made including advising customers of their use tax obligations. In particular, Colorado and Oklahoma are on the forefront in this area.
- Deemed physical presence through affiliate and “click-through” internet nexus provisions.
- Ignoring Quill, focusing on the mere economic nexus due to the fact of the drastic changes in the economy and technology. Alabama and South Dakota are on this forefront.
- Being aggressive with respect to physical presence, some jurisdictions deem that when somebody visits a vendor’s website at which time the vendor places a “cookie” on the visitor’s computer, such vendor’s cookie is a deemed physical presence in the customer state.Most recently, South Dakota initiated litigation to test its statutory provision, while at the same time, the American Catalog Mailer’s Association has initiated a suit against South Dakota.Thus, we expect much guidance on the federal front. Until then, be careful with respect to foreign jurisdictions and carefully plan your affairs including use of representatives outside of your home state as well as using installers or warranty work. Of course, if your activity in a foreign state is “de minimis”, regardless of its nature, then there will not be a tax consequence. However, that is a state by state determination as to what constitutes de minimis activity.We routinely consult in this area. Please let us know if we can assist you in your planning.