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1 Joseph Bishop-Henchman, 31 States Tax Internet Sellers without Physical Presence; Congress Considers Action before Wayfair Case Expands It to All 1 (2018)

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31 States Tax Internet Sellers Without

Physical Presence; Congress Considers

Action Before Wayfair Case Expands It to All

No. 579
Mar. 2018

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Joesph  Bishop-Henchman
Executive Vice President

   *  On April 17, 2018, the U.S. Supreme Court will hear arguments in South
      Dakota v. Wayfair, Inc., on the constitutionality of a South Dakota law
      requiring collection of the state's sales tax by internet vendors with at least
      200 transactions or $100,000 in sales to South Dakota residents.

   *  The appellants in the case seek to overturn the Quill decision of 1992, which
      holds that states cannot force sales tax collection by vendors who do not
      have personnel or property in the state (the physical presence standard).

   *  Contrary to claims that physical presence is the status quo standard, 31 of
      the 45 states with a sales tax have already expanded their state tax collection
      authority to sellers with no physical presence in the state.

   *  Some  of these laws are well-crafted, but many are not and are imposing
      significant and disparate compliance burdens on out-of-state sellers. To date,
      federal and state courts have upheld these laws, and there is strong likelihood
      that the U.S. Supreme Court will do so as well.

   *  Congress may  act before the Court does. The proposed Remote Transactions
      Parity Act (RTPA), sponsored by Rep. Kristi Noem (R-SD), would authorize
      states to collect sales taxes on internet purchases made by their residents, so
      long as the state adopts meaningful simplifications to their sales tax system.
      RTPA  incorporates more taxpayer protections than earlier federal proposals
      and would ultimately make sales tax collection simpler and easier than payroll
      and income tax withholding or unemployment  tax payments  in states that
      choose to adhere to it.

   *  Absent Court or congressional action, states are creating the scenario
      that the Commerce  Clause sought to avoid: unlimited tax authority that
      burdens interstate commerce. Congressional proposals like the RTPA,
      Mobile Workforce, the Business Activity Tax Simplification Act (BATSA), and
      the Digital Goods & Services Tax Fairness Act would replace the physical
      presence standard with one that prevents taxation based on nondirected
      and transient activity such as internet cookies, referral links, and airport

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