State efforts to undermine or challenge the Quill Corp. v. North Dakota, 504 U.S. 298 (1992) physical presence standard escalated this summer with the enactment of two sales and use tax laws targeting marketplace operators. Minnesota House File 1 (“H.F. 1”) and Washington House Bill 2163 (“H.B. 2163”), signed into law on May 30, 2017 and July 7, 2017, respectively, impose sales and use tax obligations on certain marketplaces that facilitate the sales of out-of-state third party retailers.  Minnesota and Washington are the first two states to enact such laws, and similar legislation is currently pending in the Pennsylvania General Assembly.

Overview of Sales and Use Tax Provisions Applicable to Marketplace Operators

Minnesota H.F. 1

H.F. 1 expands the definition of “retailer maintaining a place of business in [Minnesota]” to include an out-of-state retailer making Minnesota sales in excess of $10,000 through a “marketplace provider” that maintains a place of business in Minnesota, regardless of the retailer’s physical presence. While that provision alone likely violates current constitutional standards, even more significant is H.F.1’s requirement that marketplace providers collect and remit Minnesota sales and use tax on the Minnesota retail sales it facilitates for such out-of-state retailers.  A “marketplace provider” is defined as:

[A]ny person who facilitates a retail sale by a retailer by (1) [l]isting or advertising for sale by the retailer in any forum, tangible personal property, services, or digital goods that are subject to tax under this chapter; and (2) [e]ither directly or indirectly through agreements or arrangements with third parties collecting payment from the customer and transmitting that payment to the retailer regardless of whether the marketplace provider receives compensation or other consideration in exchange for its services.

Marketplace providers are relieved of their collection obligation if (1) the remote retailer provides the marketplace provider with a copy of its Minnesota sales and use tax registration, or (2) upon inquiry by the marketplace provider, the commissioner discloses that the remote retailer is registered to collect Minnesota sales tax.  The aforementioned provisions become effective upon the earlier of: (1) the U.S. Supreme Court overturning Quill Corp. v. North Dakota; (2) July 1, 2019; or (3) congressional authorization for states to impose collection and remittance requirements on remote sellers.

Washington H.B. 2163

Following in Minnesota’s footsteps, Washington enacted H.B. 2163 which requires “marketplace facilitators” who meet certain criteria to elect to either (1) register to collect and remit Washington sales tax, or (2) comply with Washington’s newly-established notice and reporting regime.  Washington’s notice and reporting regime is similar to Colorado’s 2010 use tax notice and reporting law, which was litigated in Direct Marketing Ass’n v. Brohl, No. 12-1175 (10th Cir. Feb. 22, 2016), and ultimately upheld by the Tenth Circuit Court of Appeals (see prior coverage of the Colorado law and related litigation in States on the Verge of a Nexus Showdown).  The law applies to marketplace facilitators who have a Washington physical presence or whose Washington sales exceed $10,000 in the preceding calendar year.  Sales in the marketplace facilitator’s own name and sales made as an agent of a marketplace seller both count towards the $10,000 threshold; however, if the marketplace facilitator has a Washington physical presence, the election is only available with respect to Washington sales made through its marketplace by out-of-state third party sellers (i.e., the marketplace facilitator must collect sales and use tax on its own Washington sales if it has a Washington physical presence).  The law defines “marketplace facilitator” as “a person that contracts with sellers to facilitate for consideration . . . the sale of the seller’s products through a physical or electronic marketplace operated by the person,” and who engages in certain enumerated activities. The provisions of H.B. 2163 also apply to out-of-state retailers and to “referrers,” who can generally be described as persons who connect sellers and buyers of taxable tangible personal property for a commission.  The law provides for significant noncompliance penalties, but liability relief is also provided in certain circumstances.  It is effective January 1, 2018.

Pennsylvania House Bill 542 (pending)

Pennsylvania House Bill 542 (“H.B. 542”) was narrowly passed by the Pennsylvania Senate on July 27, 2017 by a 26-24 vote. The bill has now moved on for additional consideration by the Pennsylvania House, and it reportedly enjoys support by Governor Tom Wolf.

If enacted, H.B. 542 would require marketplace providers to collect and remit Pennsylvania sales and use tax on behalf of the third party sellers whose retail sales they facilitate. A marketplace provider is defined as “[a] person who, either directly or indirectly through agreements or arrangements with third parties and pursuant to an agreement with a marketplace seller, facilitates a sale by a marketplace seller.”  A marketplace provider facilitates a sale under the law if it provides a forum for the sale to take place and collects customer payments on behalf of the third party sellers.  It is irrelevant whether the marketplace provider receives a commission or other compensation.  The Pennsylvania House’s next scheduled session is September 11, 2017.


The recent surge of legislative and administrative efforts aimed at circumventing or outright challenging the Quill physical presence standard was likely energized by the ongoing “kill Quill” movement, and the actions of Minnesota, Washington, and Pennsylvania represent government efforts to push constitutional boundaries not seen in years.  Washington, in particular, appears to be intent on testing the limits of Direct Marketing Ass’n v. Brohl by imposing use tax notice and reporting obligations not only on remote retailers selling into Washington, but on the marketplace operators who facilitate their sales.

One can only speculate whether these laws will be challenged, but, at least with respect to Minnesota, the delayed effective date appears to be an implicit acknowledgement by the legislature that the law is based on constitutionally dubious grounds. It also remains to be seen whether additional states will follow the lead of Minnesota and Washington by imposing their own obligations on marketplace operators, or if they will wait to see if the Minnesota and Washington laws pass constitutional muster before taking action.

Contact the Authors: Stephen Long and Michael Tedesco