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Six online retailers recently sued the Massachusetts Department of Revenue over the pre-Wayfair enforcement of regulation 830 CMR 64H.1.7 (“Remote Sales Tax Regulation”). The complaint argues that, prior to the Supreme Court’s decision in South Dakota v. Wayfair, Inc., No. 17-494 (U.S. Jun. 21, 2018), the Remote Sales Tax Regulation violated the Due Process Clause of the U.S. Constitution and the Internet Tax Freedom Act. On Due Process, the six online retailers argue the Remote Sales Tax Regulation places an undue burden on, and discriminates against, interstate commerce. The online retailers also argue that the Remote Sales Tax Regulation violates the Internet Tax Freedom Act’s prohibition of discriminatory taxes on electronic commerce.

The Illinois Department of Revenue has big plans this holiday season to bring different types of unitary businesses that use different apportionment formulas together under a single, combined Illinois corporate income tax return. Like many states, Illinois corporate income taxpayers are generally required to file a unitary combined corporate income tax return.  This combined reporting method aggregates in one tax return the income, deductions and apportionment factors generated by commonly owned corporations operating as a unitary group.

In overturning the Commonwealth Court, the Pennsylvania Supreme Court recently held that royalty fees for certain intellectual property were not subject to Pennsylvania sales tax. See Downs Racing LP v. Commonwealth of Pennsylvania, Dkt. No. 70 MAP 2017 and 71 MAP 2017 (Pa. Oct. 25, 2018).  The royalties at issue were payments between third parties for IP used in the operation of gaming machines (“Gaming IP”).  The Commonwealth argued the Gaming IP was canned software, and thus taxable in Pennsylvania.  The Commonwealth also argued, in the alternative, that sales tax was due on the full price paid for the gaming machines along with any ancillary items, such as the Gaming IP.  In siding with the taxpayer, the court found the Gaming IP was not subject to sales tax because it did not constitute, nor was it ancillary to, tangible personal property.

The physical presence standard is no more.  In a 5-4 decision issued this morning, the U.S. Supreme Court reversed its own precedent that, for over fifty years, provided an in-state physical presence by a retailer was a prerequisite for the constitutional imposition of a state sales or use tax collection obligation.  See South Dakota v. Wayfair, Inc., No. 17-494 (U.S. Jun. 21, 2018), rev’g Quill Corp. v. North Dakota, 504 U.S. 298 (1992) and National Bellas Hess Inc. v. Illinois, 386 U.S. 753 (1967).