On the retailer piece, Jeff is referring to outfits like my fantasy retail operation Pete’s Pokemon And PT’s, that sells vintage Pokemon cards, models of PT 109, and Spanish American War memorabilia over the internet.  The “You may fire when ready” t-shirts are flying off the shelves.  The business is pretty evenly spread across the country, though, and the South Dakota statute has a $100,000 threshold. If Pete’s were doing $100k in South Dakota, it would be doing nearly $40 million nationally and could afford to deal with the sales tax.  The other threshold is a little more troubling – 200 or more separate transactions.  I don’t remember ever buying something that cost more than five hundred bucks over the internet, so that is what will likely pull retailers in.

View From A Top Twenty CPA Firm

Gary Bingel of EisnerAmper had more for me.

The decision fundamentally redefines “nexus,” which had been about physical presence. Now, virtual presence is taxable. Ironically, in a year after historic Federal tax cuts, this represents a historic tax increase .The actual cost will be borne by consumers. However, the cost of compliance is borne by e-tailers. It levels the playing field in the competition between bricks/mortar vs. e-tailers as well as potentially helps close state budget gaps and deficits with windfall tax revenue. The ruling possibly solidifies state’s positions’ regarding economic nexus for non-sales taxes (e.g., income tax/gross receipts taxes). This could have huge implications. E-tailers need systems (software, etc.) to collect tax data and enable them to file returns in multiple jurisdictions. They may need significant investments in technology.

Before companies act and register in a state, they should evaluate any potential prior nexus and exposure for possibility of voluntary disclosure agreements (i.e., they don’t want to just register and then get audited for prior periods.) They also need to make sure they have systems in place before collecting. One unintended consequence – this may reduce use tax accruals, as now more companies will be filing in more states, so fewer untaxed transactions.

There is also the issue of sourcing – especially for services companies/tech companies: Which state gets the sale? For Widgets – very easy – destination. What about software downloaded electronically? What about services rendered over the internet? You may only have a billing address that may have no relation to where the service is being received. There may also be financial statement impacts – at least going forward – companies may need to re-evaluate their FAS 5 / ASC 540 accruals going forward. If they aren’t set up for filing sales taxes in multiple states, there is possibly a disclosure issue.

Boutique SALT Practice

Sylvia Dion of PreietoDion Consulting Partner LLC. whom I featured in my on again, off again series on women in accounting wrote me:

I can’t say I think it was the right decision, but I can say it was the expected position.  When the Supreme Court granted cert to the Wayfair cause in January of this year, I felt certain that SCOTUS would hold in favor of South Dakota and overturn Quill.  Justice Kennedy made it very clear in his 2015 opinion in Direct Marketing Association v. Brohl, which dealt with Colorado’s notification and reporting law, that the time had come to reconsider Quill.  South Dakota wasted no time enacting its economic nexus law.  I mean, literally, South Dakota’s law was enacted just 19 days after the Direct Marketing decision and Justice Kennedy’s invitation to present a case which would challenge Quill.  

In his dissent, I think Justice Roberts made a valid point, that even if he agreed that the prior SCOTUS decisions (National Bellas Hess and Quill) affirming the physical presence standard were wrongly deciding, the Supreme Court’s majority decision to overturn Quill may have lessened Congress’ motivation to consider the issue. Interestingly, even before reading Justice Robert’s opinion – I wondered the same.  Does the Wayfair decision mean the U.S. Congress will be less likely, or more likely, to enact a federal remote seller bill that would place some limits on states power to enact legislation that is even more aggressive than South Dakota’s

My concern, as I noted in your Reflections On The Supreme Court’s Reflections On Sales Tax piece is that the gates will open and many more states will see this as an opportunity to enact South Dakota styled laws – focusing on revenues and transaction thresholds to assert sales tax nexus.  Several states have already enacted economic nexus laws that are virtually identical to South Dakota’s, including Indiana, Maine, North Dakota and Wyoming. The economic nexus laws in these states all assert nexus based on an out-of-state taxpayer making sales into the state of more than $100,000 or in 200 or more separate transactions. No other activity need be present. While the $100,000 is a fairly significant revenue threshold – I’m most concerned about the “or 200 or more separate transactions” as this means many smaller online retailers could be impacted by these laws. But now, I can’t help but wonder how much lower these thresholds can go – will states enact South Dakota styled laws with let’s say a $25,000 in sales and 50 or more separate transactions threshold creates economic nexus? If they do, then many smaller online retailers may find themselves with new registration, collection and remittance duties.

But here’s another thought – the Wayfair decision has huge implications for non-sales tax states, like New Hampshire. It’s no surprise that New Hampshire Governor Sununu tweeted out “the Supreme Court’s #SDvWayfair ruling is outrageous and if they think we are just going to take this without a fight, well then they have another thing coming. We will exhaust all means to make sure that New Hampshire isn’t negatively affected by this disastrous decision.”

Again, I wasn’t surprised with the outcome, but do fear the implications for smaller online retailers and retailers in non-sales tax states, as well as the possibility that a patchwork of aggressive and non-uniform sales tax laws will almost certainly be enacted.

There is a lot to chew on there.

A Cheer And A Boo

The International Council of Shopping Centers indicated in a press release that they are quite pleased with the decision

The Court is right to note that the physical nexus standard is “unsound and incorrect” and recognized that the standard is “all the more egregious and harmful” in the internet era. Additionally, the Court noted that it cannot keep states from collecting legally due sales tax.

While states stand to gain from increased revenues, it will be up to legislators at both the state and federal level to turn the ruling into productive and concrete policy. If Congress acts further in the wake of the ruling, it must provide useful guidelines for state implementation and recognize existing imbalances in the marketplace.

Grover Norquist and Americans For Tax Reform are less pleased as their press release indicates.

We fought the American Revolution in large part to oppose the very idea of taxation without representation. Today, the Supreme Court announced, “oops” governments can now tax those outside their borders-those who have no political power, no vote, no voice.”

What Could This Have To Do With Abortion?

One of the most intriguing things about this decision was the unusual 5-4 split.  On contemporary liberal/conservative division you expect Thomas, Alito, Roberts and Gorsuch on the conservative side. (Gorsuch took Scalia’s conservative shirt along with the seat now reserved for Jesuit high school graduates) and Breyer, Kagan, Ginsburg and Sotomayor on the liberal side with Kennedy as the swing vote.  This one has Ginsberg joining Alito, Thomas and Gorsuch and Roberts dissenting with Breyer, Sotomayor and Kagan.

Now you could look at it as being confusing to conservatives.  Taxes are bad, so you should vote against South Dakota.  States rights are good, except for marijuana and sanctuary cities, so you should vote for South Dakota.  Actually what is on their minds is “stare decisis”.  Even the dissenters think Quill was wrong, but businesses have been relying on the logic for fifty years, so maybe it should be left alone.  Also, since it is about the Commerce Clause, Congress can do something about it.  In the dissent Roberts wrote

I agree that Bellas Hess was wrongly decided, for many of the reasons given by the Court. The Court argues in favor of overturning that decision because the “Internet’s prevalence and power have changed the dynamics of the national economy.” Ante, at 18. But that is the very reason I oppose discarding the physical-presence rule. Ecommerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule. Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress.

In Gorsuch’s concurrence, though, he hints that something else is on his mind.

My agreement with the Court’s discussion of the history of our dormant commerce clause jurisprudence, however, should not be mistaken for agreement with all aspects of the doctrine. The Commerce Clause is found in Article I and authorizes Congress to regulate interstate commerce. Meanwhile our dormant commerce cases suggest Article III courts may invalidate state laws that offend no congressional statute. Whether and how much of this can be squared with the text of the Commerce Clause, justified by stare decisis, or defended as misbranded products of federalism or antidiscrimination imperatives flowing from Article IV’s Privileges and Immunities Clause are questions for another day.

I asked Edward Zelinsky about that and he wrote me that Gorsuch

….like Clarence Thomas, doesn’t think there is such a thing as the dormant commerce clause but this is not the right case to push this theory.

Maybe it is because I just got done reading The Faith of Donald J. Trump: A Spiritual Biography by David Brody and Scott Lamb.  I highly recommend it, by the way. But I have to wonder if there is another decision of the fifty-year vintage that might get reconsidered next time the issue comes up, the one that evangelicals hope will be overturned – Roe v Wade.

Trump seems to be a fairly improbably person for evangelicals to admire, which they acknowledge, but the authors try to make a case for his spiritual development.  They talk about Paula White as a very important factor.  Overall, reading the book, you might get a sense that he is playing them masterfully.  The other view, though, is that regardless of his inner spiritual orientation God is using Trump and abortion is a top tier issue.

But there is no doubt that Trump has delivered for the pro-life community in just a short amount of time. Marjorie Dannenfelser, president of the pro-life Susan B. Anthony List, calls Trump and Pence “game changers for the pro-life movement.”

That is what has me thinking about the larger implication of a chink in the “stare decisis” wall.  That issue was picked up The Family Foundation in a blog post by Sean Maguire called Wayfair and Roe.  I wrote Mr. Maguire and he responded:

The Supreme Court has always had the authority to reverse decisions. Stare Decisis, the legal practice of making decisions in accordance with precedent, has never been set in stone without any deviation. One notable case that was reversed by the Supreme Court was the case of Plessy v. Ferguson, which was famously overruled in the case Brown v. Board of Education. (Holding that public schools could not be “separate but equal,” and must be de-segregated.)Roe v. Wade is not unmovable. Any time the Supreme Court does reverse themselves, it is a reminder that they have this option with their abortion cases. What made the Wayfair decision particularly powerful in making this point was the close proximity in time of the decisions that were overturned in that case.

Wayfair overturned two cases: National Belles Hess from 1967 established the “physical presence” rule for sales tax. In 1992 the Supreme Court ruled in Quill based on the “physical presence” rule and expounding upon it. (Quill depended upon National Belles Hess) It is interesting because the dates for Roe v. Wade are similar. Roe was decided in 1973, establishing the three trimester framework of abortion access based on privacy rights. Then the Supreme Court in 1992 ruled in Planned Parenthood v. Casey in reliance upon Roe, changing and modifying the trimester framework, but keeping the abortion access based on privacy rights.

Well, I promise not to stray so far from the tax angle in the future, but it is a little irresistible when you have a historic Supreme Court decision at hand and the newest justice dropping hints that something else is behind the curtain.