I hope you aren’t sick and tired of reading about nexus, sales tax, and collection obligations, because I sure am tired of writing about it. But how could I not? I can’t tell you how many years I had to go without having a great conversation about sales tax and now we have President Trump tweeting about it at the same time the Supreme Court is about to hear a landmark case on that very same topic. It’s a great time to be a sales tax enthusiast!
Readers, let’s sum up where we have been and where I think we are going in these tumultuous times.
- Our federalist system of government was established, bestowing in many ways equal power on both the centralized federal government and the individual states. Hence the reason why clients, especially those from overseas, simply can’t fathom why they have to file so many different tax returns with so many different sets of rules.
- Whether anticipated by our founding fathers or not, the Due Process Clause and the Commerce Clause have both been utilized as the main weapons for merchants not to have to collect sales tax in a state or locality where they don’t have some type of physical presence.
- In 1992, the Supreme Court held in the landmark case of Quill v. North Dakota, that while Quill clearly could have foreseen sending catalogues into a state might subject them to a state’s taxing jurisdiction (due process was satisfied), the Commerce Clause substantial nexus requirement still insists on some type of bright line physical presence to impose a sales tax collection obligation on a merchant.
- Despite the physical presence requirement set forth in Quill, state and local governments have been very creative in modernizing the definition of physical presence and/or enacting legislation that would not survive Supreme Court scrutiny were Quill to remain the law of the land.
- Various state statutes have been challenged, but have only gone as far as the state’s highest court. There have been some winners and losers on both sides.
- Finally, by agreeing to hear South Dakota v. Wayfair Inc., the Supreme Court will revisit whether the physical presence standard set forth in Quill will continue as the law of the land.
- State tax practitioners are besides themselves with excitement since for years the Supreme Court refused to review these cases, Congress has, on multiple occasions, refused to enact legislation that could create a fair system for all and we certainly didn’t have a President who would discuss any sort of state tax, let alone sales tax.
This brief history of time leaves us where we are today and, by today, I mean today. The President is tweeting that Amazon isn’t paying tax and taking advantage of the United States Postal Service. Hence my timely proposal to rectify the problem of the eroding tax base and restoring the USPS to fiscal soundness with one felled swoop. While I’m sure she is highly qualified, our current Postmaster General, Megan Brennan, should be notified by Twitter that she is being replaced by Wilford Brimley. After all, Brimley played Postmaster Henry Atkins on Seinfeld, was the Assistant U.S. Attorney General in the 1981 film Absence of Malice, served in the Marines (in real life) and has portrayed a sheriff at least two times. The current administration certainly couldn’t round up a more qualified candidate.
If you have questions on nexus, sales tax, and collection obligations, contact me at WBerkowitz@BerdonLLP.com or your Berdon advisor.
Wayne K. Berkowitz, CPA, J.D., LL.M., a tax partner and head of the State and Local Tax Group at Berdon LLP, New York Accountants, advises on the unique requirements of governments and municipalities across the nation.