Update: Is This the Beginning of a Paradigm Shift in Sales Tax Nexus?
February 2, 2018
The Supreme Court has agreed to hear a case that could overturn the physical presence nexus requirement.
By Jeff Glickman, SALT partner
In our November/December 2017 SALT Newsletter, we reported on sales tax legislation enacted in 2017 that targeted marketplace facilitators like Amazon and required them to collect sales/use tax under certain circumstances. One such state was Washington, whose law became effective on Jan. 1, 2018, and Amazon has agreed to start collecting Washington tax. In the last several weeks, a couple of other newsworthy events have taxpayers, practitioners and states asking the following question: Is this the beginning of the end for the physical presence nexus requirement as initially set forth by the United States Supreme Court in National Bellas Hess a little over 50 years ago and then reaffirmed by the Court in Quill about 25 years later? 
United State Supreme Court Agrees to Hear Challenge to Quill
Over the last several years of publishing this newsletter, we have written many articles describing state legislation aimed at requiring remote sellers to become more compliant with out-of-state sales/use tax obligations. The two most notable pieces of legislation have been use tax disclosure rules, which were upheld a little over a year ago, and sales tax economic nexus provisions, which have been enacted in about a dozen states. 
One of the first states to enact a sales tax economic nexus statute was South Dakota, whose law went into effect on May 1, 2016.  Many states enacted these laws knowing that they were unconstitutional, with the express purpose of convincing the United State Supreme Court to agree to hear a challenge to the rule, and thereby take that opportunity to overrule the National Bellas Hess/Quill physical presence requirement. South Dakota was no exception, and its statute specifically provided an expedited appeals process for any challenges to the constitutionality of the law.
The law was indeed challenged, by online giant Wayfair, and on March 6, 2017, the South Dakota Sixth Judicial Court ruled that the legislation was unconstitutional.  The state appealed, and on Sept. 13, 2017, the South Dakota Supreme Court agreed with the lower court.  The state filed a petition with the United States Supreme Court, and the Court granted the state’s petition on Jan. 12, 2018. It is expected that the Court will hear the case in April, with a decision issued in June. With the fate of the physical presence nexus requirement in the balance, this is the most significant sales tax nexus case in 25 years.
Amazon FBA Sellers Beware: Amazon to Hand Over Sellers’ Identity to Massachusetts
In an article from our August 2017 SALT Newsletter, we reported on the Multistate Tax Commission’s sales/use tax and income tax amnesty program for sellers, such as Fulfillment by Amazon (FBA) sellers, that had potential nexus from storing inventory at fulfillment centers around the country. The program was met with mixed reviews, as most of the states with Amazon fulfillment centers did not participate in the program, leaving sellers with significant potential exposure even after participating.
At the same time, one of those states, Massachusetts, had issued a summons to Amazon to turn over information on third-party vendors that had stored any tangible personal property at a Massachusetts location owned by Amazon after Jan. 1, 2012. Amazon refused, and on Sept. 25, 2017, a Massachusetts judge ordered Amazon to comply with the summons. 
Around mid-January 2018, Amazon notified its sellers that it has decided to comply with Massachusetts’ request, and that it would be handing over the following information on Jan. 26, 2018: (1) contact information and (2) estimated value of inventory in its Massachusetts fulfillment centers. It is expected that marketplace sellers with inventory stored in Massachusetts will receive a sales/use tax notification.
Other states are likely to follow suit. Therefore, we recommend that marketplace sellers reach out to a tax advisor to address potential exposures (both sales/use tax and income tax) and whether or not applying for a voluntary disclosure agreement (VDA) makes sense. Once the state gets the information from Amazon (or another marketplace facilitator) and contacts sellers, they will not be eligible for a VDA.
We constantly monitor these and other important state tax issues in order to assist you with your specific tax situation, and we will include any significant developments in future issues of the Aprio SALT Newsletter.
This article was featured in the January 2018 SALT Newsletter.
 National Bellas Hess v. Department of Revenue, 386 U.S. 753 (1967); Quill Corp. v. North Dakota, 504 U.S. 298 (1992).
 See our January 2017 SALT Newsletter article for the most recent update on use tax disclosure rules and our November/December 2017 Newsletter article for the most recent update on sales tax economic nexus provisions.
 South Dakota S.B. 106.
 South Dakota v. Wayfair, Inc., S.D. Cir. Ct., No. 32 Civ. 16-000092 (March 6, 2017).
 South Dakota v. Wayfair, Inc., South Dakota Supreme Court, No. 28160 (Sept. 13, 2017).
 Massachusetts v. Amazon Tech, Inc., No. 17-3065-E (Mass. Super. Ct. Sept. 25, 2017).
Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.
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About the Author
Jeff Glickman is the partner-in-charge of Aprio, LLP’s State and Local Tax (SALT) practice. He has over 18 years of SALT consulting experience, advising domestic and international companies in all industries on minimizing their multistate liabilities and risks. He puts cash back into his clients’ businesses by identifying their eligibility for and assisting them in claiming various tax credits, including jobs/investment, retraining, and film/entertainment tax credits. Jeff also maintains a multistate administrative tax dispute and negotiations practice, including obtaining private letter rulings, preparing and negotiating voluntary disclosure agreements, pursuing refund claims, and assisting clients during audits.