Quill. Is it still the law? October 25, Robert G. Tweel Phone

Transcription

1 Quill Is it still the law? October 25, 2016 Robert G. Tweel Phone

2 Duty to Collect Use Tax W.Va. Code 11-15A-6: Every retailer engaging in business in this state and making sales of tangible personal property, custom software or taxable services for delivery into this state, or with the knowledge, directly or indirectly, that the property or service is intended for use in this state, that are not exempted under the provisions of section three of this article, -- 2

3 Duty to Collect Use Tax W.Va. Code 11-15A-6: shall at the time of making the sales, whether within or without the state, collect the tax imposed by this article from the purchaser, and give to the purchaser a receipt therefor in the manner and form prescribed by the tax commissioner, if the tax commissioner prescribes by rule. 3

4 Duty to Collect Use Tax W.Va. Code 11-15A-6a: Provide additional rules for collection from other retailers all of which contain a Quill proviso: Provided, That such retailer has physical presence in this state in the form of employees, offices, agents or sales outlets in this state, or any other presence that provides the necessary minimum contacts for a constitutionally sufficient nexus for a state to require such a retailer collect and remit use taxes. 4

5 Duty to Collect Use Tax W.Va. Code 11-15A-7: Provides that Foreign Retailers may apply to the tax commissioner for the ability to collect tax. A foreign retailer is any retailer not engaging in business within this state 5

6 Quill Corporation v. North Dakota 504 U.S. 298 (1992) Quill was a Delaware corporation with offices in Illinois, California, and Georgia which sells office equipment and supplies through a mail order business. Quill did not have employees or significant tangible personal property in North Dakota. Quill delivered all of its merchandise to its North Dakota customers by mail or common carrier from out-of-state locations. 6

7 Quill Corporation v. North Dakota 504 U.S. 298 (1992) North Dakota sough to require Quill to collect use tax from its customers in North Dakota. The statute required every retailer maintaining a place of business in the state to collect the tax and remit it to the state. Retailer was defined to include every person who engages in regular or systematic solicitation of a consumer market in the state. Regulations define systematic as 3 within a 12-month period. 7

8 Quill Corporation v. North Dakota 504 U.S. 298 (1992) North Dakota trial court ruled in Quill s favor. North Dakota Supreme Court reversed noting: wholesale changes in both the economy and the law made it inappropriate to follow prior law. These changes were the growth of the mail order business from insignificant in 1967 to $183.3 billion in

9 Quill Corporation v. North Dakota 504 U.S. 298 (1992) The U.S. Supreme Court looked at two main issues: Due Process Clause Commerce Clause 9

10 Quill Corporation v. North Dakota Due Process: 504 U.S. 298 (1992) Requires some definite link, some minimum connection, between the state and the person, property or transaction it seeks to tax. Often referred to as minimum contacts. The standard is whether the defendant had minimum contacts with the jurisdiction such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. International Shoe Co. This standard does not require physical presence. The inquiry is whether the defendant s contacts with the forum made it reasonable to require it to defend the suit in that state. A corporation availing itself of the benefits of the economic market in the forum state is sufficient. Quill met this standard for Due Process clause purposes. 10

11 Quill Corporation v. North Dakota Commerce Clause: 504 U.S. 298 (1992) The dormant or negative implication of the commerce clause prohibits certain state actions that interfere with interstate commerce. The Clause merely reserves the right to Congress to regulate commerce among the several states. Looked at Complete Auto s first prong: that a tax must be applied to an activity with a substantial nexus with the taxing state. While due process requires fairness and notice, commerce clause is concerned about structural concerns about the effects of state regulation on the national economy. The court determined that for the commerce clause standard of substantial nexus, physical presence is required. There are still questions concerning what constitutes physical presence. Quill only applies to sales and use tax. Compare MBNA availing itself of the marketplace/significant economic presence. 11

12 Change in e-commerce 1998 virtually no e-commerce sales 1999 $995 billion 2006 $2.4 trillion 2011 $4.1 trillion 2014 $6.4 trillion (includes sales by manufacturers, wholesalers, service providers, and retailers). 12

13 Change in e-commerce Estimated sales and uses tax losses of $11.4 billion to states in Donald Bruce, William F. Fox, LeAnn Luna 13

14 State Response Four broad approaches: broadening nexus definitions Affiliate nexus through related parties or a relationship with a contractor. Click-through nexus -- nexus asserted to a remote firm affiliated internet-based firms with physical presence in the state direct sales to the remote firm. Overstock.com case in New York (Reasoning challenges Quill) Amazon Model (Note, Amazon has voluntarily agreed to collect use tax in at least 16 states). West Virginia Legislature approved click-through nexus in W.Va. Code 11-15A-1(b)(8). 14

15 State Response Four broad approaches: working together Streamlined Sale Tax initiative seeking to collect use taxes From individual 25 states have a line item on the income tax return to report use tax due. imposing reporting requirements Several states have sought to have retailers report sales to individuals within the state. 15

16 State Response Several states have gone beyond and are challenging whether Quill should still be the law of the land. Alabama appears to be leading the charge requiring collection of use tax by business with a substantial economic presence within the state (Reg.) South Dakota -$100,000 of gross revenue or 200 or more separate sales transactions (Leg.) Tennessee Regular or systematic/ Sales in excess of $500,000 (Proposed by regulatory change) 16

17 State Response Several states have gone beyond and are challenging whether Quill should still be the law of the land. Connecticut acting Tax Commissioner published a letter questioning whether it was time to operate as though Quill is no longer good law. National Conference of State Legislatures issued a letter to state legislatures urging them to act with haste to expand state statutory authority to collect sales tax along with draft state legislation. Several states considering legislation. 17

18 State Response Several states have gone beyond and are challenging whether Quill should still be the law of the land. State action was prompted by Justice Kennedy who stated in a concurring opinion in Direct Marketing Assn v. Brohl: The instant case does not raise this issue in a manner appropriate for the Court to address it. It does provide, however, the means to note the importance of reconsidering doubtful authority. The legal system should find an appropriate case for this Court to reexamine Quill and Bellas Hess. 18

19 Deeper Issue Presented in the Challenge to Quill Uber Bill : (b) No taxation by any municipality. (d) The provision of prearranged transportation service by a transportation network company driver is exempt from the consumer sales and service tax and use tax. 19

20 Deeper Issue Presented in the Challenge to Quill As we move to an online sharing economy, how should we craft tax systems to match the changes in economic activity. Quill presents issues internet sellers include small businesses that still may not have the technological business accumen to comply with 50 state requirements with use tax. 20

21 Deeper Issue Presented in the Challenge to Quill States will need to tax economic activity where it occurs, and collection at the source of the activity is the best way to ensure compliance. 21

22 Deeper Issue Presented in the Challenge to Quill States need to think through a comprehensive plan for a tax system which adequately meets the coming challenges some of which we don t even know today to make certain the tax structure is flexible enough to encompass new and varying economic activity availing itself of the states marketplace. 22

23 QUESTIONS? 23