The Mundane Situations of Chestnut + Hazel # 19

Business, Economic and Social Significance

·         The Physical Presence requirement established in National Bellas Hess v. Department of Revenue, 386 U.S. 753 87 S. Ct. 1389 18 L. Ed. 2d 505 (1967) and Quill Corp. v. North Dakota, 504 U.S. 298, 112 S. Ct. 1904, 119 L. Ed. 2d 91 (1992) was overruled.

o   Quill Corp. v. North Dakota required that a business have a physical presence in a state in order to determine whether or not a business had a substantial nexus in a state for state sales taxation purposes, even though Quill accepted that a physical presence in a state was not required to establish a substantial nexus in a state for due process purposes.

o   The Majority Opinion in South Dakota v. Wayfair, Inc., 585 U.S. 162, 138 S. Ct. 2080, 201 L. Ed. 2d 403 (2018) pointed out that in Quill the majority opinion expressed concern that it would be difficult for a business to collect the correct sales tax amounts, suggesting that modern technology would make this problem less of an issue.

§  The Dissenting Opinion in South Dakota v. Wayfair argues that sale tax collection could still be problematic in modern times, pointing out that there are over 10,000 different sale tax jurisdictions in the United States with different policies for taxable and tax-exempt goods and services, different product categories, and different substantial nexus requirements.

§  The Dissenting Opinion in South Dakota v. Wayfair points out that in New Jersy, yard for art projects is taxable, but yarn for sweaters is not taxable. Texas levies tax on plain deodorants, but not on deodorants with antiperspirants. In Illinois Twix and Snickers candy bars are subject to different tax rates, given that Twix contains flour and Snickers does not.

o   The Majority Opinion pointed out that modern technology also provided more of an advantage to businesses seeking to capitalize on the Physical Presence requirement for the purposes of avoiding state sales tax collection.

§  The Court argued that the physical presence requirement resulted in market distortions that incentivized companies to avoid building out their businesses in a way that might be more operationally efficient because doing so would result in a physical presence in a greater number of tax jurisdictions.

§  As a hypothetical example: a business might set up all their operations in Alaska. Shipping everything out of Alaska wouldn’t be operationally efficient, but tax efficiencies might incentivize this type of operation anyway.