Baker McKenzie attended the U.S. Supreme Court’s oral arguments yesterday in South Dakota v. Wayfair, Docket No. 17-494. At issue in the case is whether the Court should abrogate the physical presence nexus standard that it first articulated in National Bellas Hess v. Dep’t of Revenue, 386 U.S. 753 (1967), and later affirmed in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). The Court’s decision could have a profound impact on sales and use tax nexus in the United States by altering the limitations currently imposed on a state’s ability to require out-of-state retailers to collect such tax.
On June 12, 2017, Congressman Jim Sensenbrenner (R-WI) reintroduced into Congress H.R. 2887, also known as the “No Regulation Without Representation Act of 2017” (the “Legislation”), which codifies the physical presence nexus requirement established by the U.S. Supreme Court in Quill v. North Dakota, 504 U.S. 298 (1992) (“Quill”). The Legislation is interesting for several reasons: (1) it proposes to employ a result that is the exact opposite of the recent trend to overturn Quill; (2) it defines “tax” broadly to include net income and business activity taxes; and (3) it expands the law to require a physical presence for states to regulate a person’s activity in interstate commerce outside of the tax context.
In TracFone Wireless, Inc. v. Director of Revenue, SC95785 (Mo. 2017), the Missouri Supreme Court recently held that an out-of-state seller of telecommunications services from Florida to customers in Missouri was not entitled to Missouri’s sales tax exemption for transactions made “in commerce” between Missouri and any other U.S. state. In reaching its conclusion, the Court looked to the “true object” of the transactions to deem them purely local telecommunications service transactions, even though the seller was located outside of and the sales took place outside of Missouri.
The U.S. House of Representatives passed H.R. 2315, the Mobile Workforce State Income Tax Simplification Act of 2015 (“Mobile Workforce Act” or “Act”), on September 21, 2016. The Senate received the House-approved bill on September 22, 2016, and its ultimate fate remains unclear.