Post Wayfair / Quill World – Review of Some Sales Tax Issues

Post-Wayfair/Quill World:  A Brief Review of Some Key Issues

The oral arguments in the Wayfair Supreme Court case are over; the judges have convened, made its decision and assigned a judge to write the opinion that should be published hopefully by the end of June.  The odds makers are out and are all over the place:  5 to 4 for overturning Quill; 5 to 4 for upholding Quill, and 5-4 that the Court will remand the Wayfair case back to the states for further development of the key facts, such as the costs and burdens of the Quill nexus standard.   In anticipation of that decision and to put the decision in context, it may be useful to briefly refresh our memories on some of the key sales and use tax issues that have arisen over the past 20+ years since the Quill decision and how those issues may be affected by the Wayfair decision.   Issues like:

  • the Streamlined Sales Tax Agreement
  • Use Notification and Reporting Requirements
  • Manufacturer’s exemptions
  • Small Retailers: Cost of Compliance
  • Amazon and Other Marketplace Providers
  • States without Current Sales Taxes
  • Retroactivity
  • Federal Reaction to State Actions
  • Post-Quill Effect on Services
  • Problems Other than Nexus


Streamlined States Sales Tax Agreement

If Quill is affirmed, that would discourage additional States from joining the Agreement, thereby stagnating the benefits streamlining provides to the States, the participating sellers, and the national economy. Worse, affirmance of Quill could well serve to chill these types of cooperative efforts and instead encourage each State and municipality to develop a “go it alone” approach that maximizes revenues in the short term, at the expense of consistency and administrability, e.g., key states like California, Texas, Illinois, Florida, and New York.

On the other hand, overruling Quill will be the most effective way to avoid the “welter of inconsistent obligations” that will undoubtedly arise.


Use Notification and Reporting Requirements

In additional to nexus, some states like Colorado have “avoided” the nexus issue entirely by passing “use tax notice and reporting laws”—requirements for out-of-state sellers that are not currently collecting and remitting applicable taxes to report sales information for tax purposes to the state and/or consumer.  This has been referred to by some commentators as “ratting” on your customers (See Direct Marketing Association v. Brohl – US Supreme Court).  If Quill is affirmed, we would expect all states to adopt these reporting requirements.


Manufacturers Exemption

If Quill is overturned.  Manufacturers and Wholesalers might become prime target of so-called “gotcha tax audits” because almost all sales by manufacturers are supposed to be tax-exempt. If South Dakota’s economic nexus law is upheld, wholesalers and manufacturing companies must either spend enormous resources to hire tax professionals and properly document tax-exempt sales in over 10,000 jurisdictions or risk incurring substantial taxes, penalties, and interest for transactions that were never supposed to be taxed in the first place.


Small Retailers: Costs of Compliance

If Quill is Overturned:  the Small Business Burden.  If economic nexus laws like the one enacted by South Dakota are upheld by this Court, then remote Retailer/Sellers across the U.S. will become the targets of sales tax audits even though no employee or owner of the company resides or votes in the remote states.  And in the amicus brief filed by the Computer and Communications Industry Association,

“The magnitude of businesses that would be burdened by a change in the established rule is likely to go far beyond online businesses. This impact will be felt on small businesses, which rely on the Internet to engage in commerce. Maintaining an online presence is important for small businesses of a wide variety of industries to engage in commerce. Merely operating with a web presence, whether self-hosted or on an online platform like WordPress, Tumblr, or Etsy, should not expose a business to regulation in every jurisdiction where that presence is visible.


Amazon and Other Market Providers

Amazon backs a nationwide approach that would relieve retailers from dealing with a patchwork of state laws. Amazon once relied on the Quill ruling and didn’t collect sales tax at all; the company gradually changed its position as it built warehouses all over the country, giving it a greater physical presence in multiple states.  If Quill is repealed, marketplace providers may become more important to enable small seller to comply with the law.


States without Current Sales Taxes

Many of these states oppose the repeal of Quill.  For example, New Hampshire does not impose a sales tax on retail goods and its retail businesses. In its view, overturning the physical-presence requirement would harm New Hampshire’s sovereign interests by permitting other States to reach across its borders and impose sales tax collection compliance on New Hampshire retail businesses. Such a result threatens brick-and-mortar border businesses, as well as small Internet retailers, within New Hampshire with sales tax obligations that promise to be extraordinarily difficult for them to detect and may expose them to unknown tax liability in other states.



Many other states have concerns that if Quill is overturned, states will apply the new rules retroactively.  Even the Court expressed some concern over this issue.  However, many others feel that it will not be an issue for the following reasons:

Existing regulations in many states will prevent retroactive application of a new post-Quill rule.

  • Should other States choose to take a different approach, their normal procedures for implementing significant regulatory changes—including advance notice—provide adequate safeguards to abate any surprise that might accompany a new Supreme Court rule.
  • if those safeguards do not resolve the question, the Court has the authority to craft a holding that applies prospectively only for all retailers and taxpayers.

We shall see whether the Court feels it should step in.


Federal Reaction to State Actions

Although Congress has been slow to pass legislation on the nexus issue, many commentators think that if the Court were to overturn Quill, that might be the thing that would spur Congress to act.  The thinking is that if the Court got rid of the physical presence test, states would go back to a very minimum test that increases the likelihood that most would be taxable.  Such taxable “expansion” might then raise enough Congressional concern expressed by taxpayers to produce federal legislation to “reign in the states”

Post-Quill Effect on Services

In reviewing the amicus briefs, there is fear that overturning Quill will open the doors to more aggressive taxing of services, (for example Saas), which very few states currently tax aggressively.  The feeling is that the Court should make it clear that its holding does not apply to services.

Problems other than Nexus

Nexus will not solve all the problems.  Commentators have noted that the states need to be adopting new tax systems that make it easier for these sellers to register and collect the tax that is due on sales made to states where they have sales. In some cases, it is felt that the state sales tax policies and procedures, and not Quill, may be the most significant obstacle preventing states from collecting more sales tax.



There is very little disagreement that at the very least the Supreme Court needed to review the Quill decision, regardless of the outcome.  At a minimum, it is hoped that that holding will provide some much-needed clarity or context to these and other issues, and that such clarity or context will then provide a clearer context for future state and/or federal legislative efforts on these issues.  Practitioners and their advisors will have to stay on top of all these changes for their clients.   One way to do this is with a state-of-the-art sales and use tax software and research system.  CCH SureTax – sales tax tools you can trust


Jerome Nestor

Jerome Nestor, Esq., CPA, MBA-Accounting Information Systems Manager Tax & Accounting North America Wolters Kluwer Mobile: +1 847.312.5671 Email:

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