In 1992, the Supreme Court ruled in Quill vs. North Dakota that states can only require retailers to collect sales taxes where they have physical nexus (i.e. offices or stores). If you're reading this blog, you're most likely familiar with the battle states have been waging to try and get out-of-state retailers to collect their state sales tax.
The Supreme Court ruled this week on a case involving online sales tax collection by out-of-state retailers. We summarized the case in Newsflash
, but aside from the ruling, what's fascinating is Justice Kennedy's statements in his concurring opinion.
Kennedy said doing extensive business within a state through mail or Internet could give businesses sufficiently "substantial nexus" to justify imposing some minor tax-collection duty (though it is far from clear that Colorado's law is "minor" in its impact on merchants).
He even sought to redefine the term physical nexus: "Today buyers have almost instant access to most retailers via cell phones, tablets, and laptops. As a result, a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the term."
Kennedy was openly sympathetic to the states and wrote, "A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier."
And perhaps most surprising, he said "the legal system should find an appropriate case for this Court to reexamine Quill and Bellas Hess."
Missing from the argument is the fact that large retailers are collecting sales tax in most states already. Retailers like Macy's, Walmart, and Amazon have a physical presence in many states, therefore collect sales tax on online transactions in those states.
It may not be the courts that decide the issue - Congress has been considering legislation for a few years now, though it has failed to pass a law thusfar.