Over the last few decades, states have had the opportunity to broaden their income and franchise tax base by ensnaring a larger proportion of out-of-state taxpayers in their taxing regime through adoption of broad economic or factor-based economic nexus standards.
However, states have traditionally struggled to do the same with respect to their sales and use tax base because of the long-standing United States Supreme Court nexus decision in Quill Corp. v. North Dakota (1992).” 1 For nearly three decades, the dicta contained in Quill have prevented states from adopting economic-based nexus
standards with respect to sales and use taxes, requiring instead a more stringent physical presence standard (or “substantial nexus”).
The Supreme Court has repeatedly declined to hear challenges or cases related to Quill, until recently.
On January 12, 2018, the Supreme Court granted South Dakota’s petition for a writ of certiorari filed in South Dakota v. Wayfair (2018) 2, thus agreeing to revisit the landmark sales and use tax ruling which established that a state may not impose sales tax on out-of-state sellers of tangible personal property that have no physical presence within the state.
The Court’s decision in Wayfair is likely to bring clarity on nexus and filing requirements for many interested parties, especially those operating in the ecommerce industry.
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