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Supreme Court to Hear Internet Nexus Challenge

Berdon State and Local Tax Team
01.19.2018 | Client Alert

In South Dakota v. Wayfair, Inc., et al, U.S., No. 17-494, the U.S. Supreme Court has agreed to revisit a 26-year old nexus ruling that will have important implications for the way goods purchased over the internet are taxed. Specifically, the Court will hear South Dakota’s contention that a related 1992 “physical presence” ruling — Quill Corp. v. North Dakota, 504 U.S. 298 — is obsolete in the ecommerce era and should be overturned.

State and local governments have long claimed that they have been missing out on billions of dollars of sales tax collections from online merchants and other remote sellers. Online retailers Wayfair Inc., Overstock.com Inc., and Newegg Inc. are opposing South Dakota in the court battle.

The high court’s 1992 ruling in Quill, which involved a mail-order company, said retailers can be forced to collect taxes only in states where the company has a “physical presence.” South Dakota passed its economic nexus law in 2016 with an eye toward overturning the Quill decision. The law requires retailers with more than $100,000 in annual sales in the state or retailers that completed more than 200 sales annually in South Dakota, to collect sales tax on all taxable sales into the state. Soon after enacting the law, the state filed suit and asked the courts to declare the measure constitutional.

The U.S. Supreme Court is likely to hear arguments in April and issue a ruling by the end of its nine-month term in late June.

Questions? Contact your Berdon advisor.
Berdon LLP New York Accountants