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Tax and accounting

Are there more twists to come in the online sales tax saga?

Brian Peccarelli  Chief Operating Officer, Customer Markets

Brian Peccarelli  Chief Operating Officer, Customer Markets

If the South Dakota v Wayfair case is ever turned into a movie, it might be released as Kill Quill.

Quill (Quill Corp v. North Dakota) was a 1992 U.S. Supreme Court ruling that barred states from collecting sales tax from retail purchases made via e-commerce unless the seller had a physical presence in the state.

The case stemmed from North Dakota’s attempts to collect sales tax on computer software sold by the Quill Corporation, a firm incorporated in Delaware and with no physical connection to the Midwest state. It sold products via catalogs, print advertisements and telephone calls.

Mainly due to the phenomenal growth of internet retailers, Quill led something of a troubled life and many felt it was living on borrowed time. The smoking gun [spoiler alert] eventually came from June’s South Dakota v. Wayfair. We may never know if there were scenes reminiscent of 12 Angry Men within the Supreme Court, but a narrow 5-4 ruling to Wayfair meant Quill had to go.

Few were surprised. Since 1992, the internet has revolutionized the way we shop. In the early 1990s it was the preserve of scientists and university laboratories. Now, almost faster than you can tell your smartwatch: “Siri, I want a dozen red roses delivered from my favorite Delaware florist to my home in South Dakota,” a bouquet can be on its way.

Should that florist make 200 such sales, or if in-state sales exceed $100,000, it would now be required to collect and remit a 4.5% sales tax to South Dakota.

While the growth of the internet made Quill obsolete quickly, the Wayfair decision is hardly future-proof. The Supreme Court in Quill made it clear that Congress could overrule its decision through legislation and while Wayfair makes it more likely, it’s by no means guaranteed.

This leaves us with more than 10,000 state and location jurisdictions in the U.S. where sales tax could be demanded. Some states, such as New Hampshire, are looking to pass an act to protect their businesses from other states’ taxation. Many more will seek to enact a model similar to South Dakota’s.

What it means for business is uncertainty and complexity – and while Wayfair is just one small aspect of digital change, it highlights perfectly the challenges businesses face.

Ironically, giants like Amazon have already begun to collect and remit the tax, regardless of whether they have a physical presence in a state, and so the revenue loss to states is already receding. States are broadly happy now, so the losers in this ruling are likely to be smaller businesses – ones that may not have the resources to come to terms with all of Wayfair’s implications – and consumers who may find the tax costs are passed on to them.

So don’t be surprised if there are sequels to Kill Quill. After all, how many versions of A Nightmare on Elm Street have there been?

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