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Sales Tax Collection No Longer Requires Physical Presence (AKA “The Day Stare Decisis Died”)

06.25.18 | SALT Chat

A long long time ago, I can still remember how[1] the concept of stare decisis “promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process.[2]

Let’s get to what you need to know first.  On Thursday, June 22, the Supreme Court of the United States handed down the long awaited decision in South Dakota v. Wayfair, Inc. effectively eliminating the requirement that a seller of goods needs to have a physical presence in a jurisdiction in order to be compelled to collect sales tax.  As long as certain thresholds, yet to be determined, are met, any internet merchant, regardless of whether they ever set foot in a jurisdiction can (and likely will) be required to collect the sales tax.

The ire with the decision rests not so much with the result, but with how the Court reached it.  Fifty years ago, the Court concluded in Bellas Hess and 25 years ago in Quill, that some physical presence must occur in order to impose a collection obligation.  Yet without much ado, the majority writes that “[a]lthough we approach the reconsideration of our decisions with the utmost caution, stare decisis is not an inexorable command.”

Yet as the 5 to 4 minority opinion acknowledges that even though Bellas Hess and Quill may be incorrectly decided and removed from the current economic realities of the ecommerce marketplace, it is particularly troublesome to ignore past precedents, especially in an area that Congress can so easily correct the wrong.  In fact, the minority points out the many failed attempts by Congress to do so.

This all takes me back to the fall of 1988 and memories of why Contracts, Torts and Civil Procedure class all seemed so sensible and Constitutional Law just boggled my mind.  I am sure that I must have naively blurted out in more than one study group session, if not actually in class, “why are we studying this at all.  Don’t they just make it up as they go along[3]?”

Although I think the result is correct, thirty years later I’m still baffled as to how and whether the Supreme Court should play this role.  I’m just waiting for the waves of state legislation requiring you, my clients and friends, to start collecting sales tax — everywhere!

If you have questions (and you will), 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 clients on the unique requirements of governments and municipalities across the nation.

[1] For those of you who have not yet realized it, I did in fact shamelessly steal the first two lines from Don Mclean’s hit song, “American Pie.”

[2] Legal Information Institute at www.law.cornell.edu/wex/stare_decisis, citing Alleyne v. United States, 570 U.S. 99 (2013).

[3] Warning to my daughter who is starting Law School this fall; don’t yell this out in class.  It won’t go over well.