Continuing with my list of ten news items and activities from 2015 that I think have particular tax policy relevance.  Today, for my third item is Justice Kennedy’s concurring opinion in Direct Marketing Association v Brohl, Exec Dir, Colorado Dept of Revenue, No. 13-1032 (3/3/15). In this opinion, Justice Kennedy posits that perhaps given “changes in technology and consumer sophistication,” it is time to revisit the Court’s 1992 decision in Quill, 504 U.S. 298! He also noted that Quill was a case “questionable even when decided, [that] now harms States to a degree far greater than could have been anticipated earlier.”  This is a major item for 2015. It is really an invitation to any and all states with a sales tax to send a bill to a remote (non-present) vendor and hope that the vendor will challenge the assessment all the way up the administrative and judicial review process to land on the US Supreme Court’s agenda.

This is what North Dakota did a long time ago when it challenged the Bellas Hess decision of 1967 arguing that physical presence as a sales tax nexus standard was out of date. While North Dakota lost, the Court did clarify that for Due Process purposes (14th Amendment), a physical presence was not required, just a purpose to establish a market in the state (“if a foreign corporation purposefully avails itself of the benefits of an economic market in the forum State, it may subject itself to the State’s in personam jurisdiction even if it has no physical presence in the State”). But, the Court said for commerce clause purposes, a physical presence was required before a state could impose sales/use tax collection obligations on a remote vendor. The Court also noted that since Congress controls the commerce clause, it could provide a different result it it wanted to. States have been hopeful for over 20 years since but without any enacted legislation, will certainly take up Justice Kennedy’s call to action and pursue a repeat of the steps that led to Quill, although the states are hoping the Court will cut back on the physical presence standard in some way.

At least one state so far has accepted Justice Kennedy’s invitation. Alabama has new regulations that go into effect for sales on or after 1/1/16 requiring vendors with a substantial economic nexus in the state to collect sales/use tax from customers. One of the requirements for substantial economic nexus is “retail sales of tangible personal property sold into the state exceed $250,000 per year based on the previous calendar year’s sales.”

Let’s see what happens and what other states follow Alabama’s lead.

What do you think?

My list so far of news and activities of 2015 with tax policy relevance (no ranking involved):

See #4