Recently, the South Dakota Sixth Judicial Circuit Court granted Wayfair’s motion for summary judgment, finding South Dakota’s remote sales tax statute, S.B. 106, unconstitutional under Quill v. North Dakota, 504 U.S. 298 (1992). South Dakota v. Wayfair, Inc., S.D. Cir. Ct., No. 32 Civ. 16-000092 (Mar. 6, 2017) (“Wayfair”). The case appears to be headed directly to the South Dakota Supreme Court, assuming the state appeals. As a brief recap, S.B. 106 requires retailers to collect and remit sales tax if they have annual sales exceeding $100,000 or 200 separate transactions in the state, regardless of physical presence. See our prior coverage The Possible Upshot of South Dakota’s Master Plan to “Kill Quill”. The statute was purposefully designed to directly challenge the Quill physical presence standard. As of our last report on Wayfair, the defendants had the case removed to the U.S. District Court for the District of South Dakota. However, in January, the federal district court granted the state’s motion for remand to the South Dakota Sixth Judicial Circuit Court after determining that it lacked jurisdiction to hear the case. This was a victory for the state as S.B. 106 specifically provides for fast-track litigation through the state court system.
After years of litigation, injunctions, and a U.S. Supreme Court decision, the controversy between Data & Marketing Association (“DMA”) (formerly Direct Marketing Association) and the State of Colorado has come to a conclusion. On February 22, 2017, DMA and the Colorado Department of Revenue (the “Department”) entered into an agreement (the “Settlement Agreement”) resolving the dispute in Direct Mktg. Ass’n v. Colo. Dep’t of Revenue, Colo. Dist. Ct., No. 13-CV-34855, which involved a challenge to the Colorado use tax reporting requirements enacted in 2010. (The Settlement Agreement is available at http://thedma.org/wp-content/uploads/DMA-Colorado-Executed-Settlement-Agreement.pdf.) Under the Settlement Agreement, the Department agrees that compliance with those use tax reporting requirements will not be required until July 1, 2017 and agrees to waive any and all penalties for non-collecting retailers who failed to comply with the use tax reporting requirements prior to July 1, 2017. So on July 1, 2017, a new day of use tax notification and reporting enforcement will dawn in Colorado – and it would not be surprising if other states follow suit.
On February 22, 2016, the US Court of Appeals for the 10th Circuit (“Tenth Circuit”) upheld the constitutionality of Colorado’s use tax notice and reporting requirements imposed on out-of-state retailers in Colo. Rev. Stat. § 39-21-112(3.5) and the regulations thereunder (collectively the “Colorado Law”). Direct Marketing Association v. Brohl, Dkt. 12-1175 (10th Cir. 2016) (“DMA I”). The Direct Marketing Association (“DMA”), an industry group of businesses and organizations that market products via catalogs, advertisements, broadcast media and the Internet, challenged the Colorado Law, claiming that the notice and reporting requirements violated the Commerce Clause by discriminating against out-of-state retailers and unduly burdening interstate commerce. The Tenth Circuit found that the Colorado Law does not violate the Commerce Clause on either ground. The court also held that the bright-line physical presence nexus standard established by the US Supreme Court in Quill v. North Dakota, 504 U.S. 298 (1992), only applies to sales and use tax collection and not to the use tax notice and reporting requirements imposed by the Colorado Law, meaning that such requirements of the Colorado Law could be imposed on retailers without a physical presence in Colorado.