On Thursday, June 21, 2018, the United States Supreme Court issued a landmark decision that will significantly alter the e-commerce landscape and result in significantly increased sales tax collection by the states.  The new ruling holds that states may require online retailers to collect sales tax even if the retailer has no physical presence in the state.

In 1967, National Bellas Hess, Inc. v. Department of Revenue of Illinois, and again in 1992, in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the Supreme Court held that a state’s power to require an out-of-state seller to collect and remit sales tax to the consumer’s state depended on whether the seller had a physical presence in that State, and that the mere shipment of goods into the consumer’s state based on a catalog order did not satisfy the physical presence requirement.

Since the Quill opinion in 1992, commerce in the United States has experienced a seismic shift.  With the advent of the Internet and e-commerce, state borders and physical distance have become far less relevant, with consumers able to purchase from sellers regardless of location.  States have long argued that Quill’s physical presence requirement costs them billions of dollars in tax revenue, as they are prohibited from requiring retailers without a physical presence to collect and remit sales tax on sales to their residents and collecting tax directly from customers has been problematic.  Over the last 26 years, neither Congress nor the Courts have disturbed Quill.

South Dakota v. Wayfair, Inc.
South Dakota directly challenged Quill by passing S. 106, requiring out-of-state sellers to collect and remit sales tax “as if the seller had a physical presence in the state” if, on an annual basis, the seller delivers more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State.  The state then filed a declaratory judgment action against online merchants, Wayfair, Inc.,, Inc., and Newegg, Inc., none of whom have employees or real property in South Dakota.  The merchants obtained summary judgment based on Quill’s authority and the South Dakota Supreme Court affirmed. 

The United States Supreme Court took the case and explicitly overruled Bellas Hess and Quill, holding that “Quill is flawed on its own terms” because “the physical presence rule is not a necessary interpretation of the requirement that a state tax must be ‘applied to an activity with a substantial nexus with the taxing State.’”  South Dakota v. Wayfair, No. 17-494, slip op. 10 (2018).  Especially in the Internet age, with the “continuous and pervasive virtual presence of retailers,” physical presence is an anachronism.  Moreover, “Quill creates rather than resolves market distortions,” because it gives out-of-state merchants a price advantage over in-state merchants, who must collect the tax.  Id.  Finally, “Quill imposes the sort of arbitrary, formalistic distinction that the Court’s modern Commerce Clause precedents disavow.”  The court thus concluded “that the physical presence rule of Quill is unsound and incorrect,” and overruled it.

Immediate and long-term impacts
The effects of Wayfair will be significant and immediate.  At least seven states have already passed state laws very similar to South Dakota’s, many knowing that the law’s validity depended on Quill being overruled.  On June 14, 2018, for example, Connecticut passed Public Act No. 18-152, which significantly expands the conditions under which out-of-state retailers must collect and remit Connecticut sales tax, targeting “market facilitators” like eBay and Etsy.  Similarly, on June 4, 2018, Illinois passed H.B. 3342, which requires remote retailers with cumulative gross receipts of at least $100,000 in sales into the state or 200 or more separate transactions in a year to collect and remit sales tax.  At least Minnesota, Oklahoma, Pennsylvania, and Washington have also passed similar laws expanding the collection of sales tax from out-of-state online retailers.  Other states have attempted to expand their ability to collect sales tax from out-of-state merchants even if Quill were upheld.  Ohio, Rhode Island, and Massachusetts, for example, have attempted to equate online activity with physical presence, claiming that the use of retailers’ software (including cookies and data tracking tools) by in-state customers on their computers or devices satisfies Quill’s physical presence requirement.  Without Quill, such arguments are unnecessary and it is only a matter of time until most states have passed laws similar to South Dakota’s.  Wayfair thus spells the end of an era in which merchants could sell significant quantities of goods to buyers in a state where the merchant had no physical presence and not collect sales tax.  Merchants with an online presence must prepare now to put in place the collection and remittance infrastructure for all states in which they conduct significant online business.  New Hampshire, which has no sales tax, swiftly criticized the Wayfair decision as placing a devastating burden on its small businesses, which, until now, have not collected sales tax on any sales, but will soon be subject to every state’s taxing jurisdiction.  This position is likely to gain traction with small businesses advocacy groups, and perhaps other states that do not impose sales tax.

Wayfair is thus almost certain to prompt a new push for a federal law to protect small online retailers by limiting states’ ability to require small businesses to collect out-of-state sales tax.  Whereas states have, until now, been the major advocates for Congressional action in this area, this new push will come largely from Internet retailers and catalog businesses seeking limits on state action.

Wayfair will likely also lead to states taking increasingly more aggressive positions with respect to income and franchise tax nexus.

Next Story / MEDIA ALERT

Baker Botts Partners to Speak at World Gas Conference

WASHINGTON, D.C., June 18, 2018 – Baker Botts L.L.P., a leading international law firm, and the exclusive thought leadership sponsor of the 2018 World Gas Conference, announced today that nine of its Energy, Corporate and Litigation partners will be appearing as masterclass leaders, moderators and speakers at the upcoming World Gas Conference in Washington, D.C. from June 25th to June 29th.

“Baker Botts is a recognized leader in the global energy sector, and we are delighted to be the exclusive thought leadership sponsor for the World Gas Conference, one of the most important global energy conferences,” said Steven Miles, a Washington, D.C. based partner and Chair of the firm’s Energy Sector Committee.

“The depth, breadth and sheer number of Baker Botts energy sector partners, from multiple practice areas, who are participating on panels, speaking at the event and have submitted papers and briefs, really speaks to our leadership, experience and expertise in the global energy arena,” said Jason Bennett, a Houston based partner and Chair of the firm’s Global Projects practice.

Partners from Baker Botts' Energy, Corporate and Litigation practices who will be leading masterclasses, speaking and appearing on panels include:
  • Houston based Energy partner and Chair of the firm’s Global Projects Practice, Jason Bennett and Washington based Energy partner, Tom Holmberg will lead an industry Master Class Course on “LNG Projects – Structuring and Contracting Strategies in Today’s Market” on Monday, June 25th at 9:00 am

  • London based Energy partner Hamish McArdle will be discussing “The Shifting Sands of Shale Gas Abundance and Global Markets“ on Wednesday, June 27th at 10:20 am

  • Washington based partner and Chair of the firm’s Energy Sector Committee, Steven Miles will be moderating a panel titled “The Global LNG Market: Key Drivers, Challenges and Opportunities” on Wednesday, June 27th at 10:20 am

  • Houston based Corporate partner Kelly Rose will be moderating a panel titled “Inclusion Drives Innovation: Promoting Women & Diversity” on Wednesday, June 27th at 10:20 am

  • Austin based Environmental partner Aileen Hooks will be participating in a panel discussion titled “Transmission Pipelines: Trends and Challenges.” She will present "Reviewing the Environmental Review Process for Gas Pipeline Projects - In Search of Common, Better and Best Practices for the Future" on Wednesday, June 27th at 11:40 am

  • Houston based Energy partner David Jetter will be speaking on a panel titled “Changes in Emerging Gas Markets – Middle East, Southeast Asia and Latin America” and presenting on "The Dynamic Role and Future of LNG Imports in Latin America and the Caribbean" on Thursday, June 28th at 11:40 am

  • Washington, D.C, based Energy partner Mark Spivak will be participating on a panel which will review “Financing Natural Gas Projects in A Lower Carbon Energy Future” on Friday, June 29th at 10:20 am

  • New York based Corporate partner Martin Toulouse will be speaking on a panel titled “Gas to Power” and speaking on "Developing and Financing LNG-to-Power Projects: Challenges and Solutions" on Friday, June 29th at 11:40 am

Baker Botts lawyers will be available for comment and interviews during the conference.

To schedule an interview, please contact Brecke BoydSheena Cochran or Louisa Williams.
Next Story / OUR LAWYERS

Baker Botts has been Building Impressive Momentum in California of Late

WASHINGTON, D.C., June 22, 2018 – Baker Botts L.L.P., a leading international law firm, announced that the firm’s Intellectual Property practice again received high recognition in IAM Patent 1000: The World’s Leading Patent Professionals 2018 – a guide identifying the top patent professionals in key jurisdictions around the globe.

Baker Botts ranks coast-to-coast in the United States and globally in this year's IAM Patent 1000. The firm rankings are as follows:

  • California – Litigation
  • DC Metro Area – Prosecution (Recommended) and Litigation
  • New York – Transactions (Recommended), Prosecution and Litigation
  • Texas – Transactions, Prosecution (Highly Recommended) and Litigation

In their commentary, IAM Patent 1000 highlighted Baker Botts’ fast-growing practice stating it’s a firm with, “huge experience taking cases to trial not just in the Lone Star State, but across the country, Baker Botts has been building impressive momentum in California of late.”

Additionally, this year's IAM Patent 1000 noted, “a major leaguer, and a five-tool player at that, Baker Botts is as versatile in intellectual property and patents as any firm in the country; it demonstrates a mastery of prosecution, litigation and transactions.”

IAM Patent 1000 recognized 19 lawyers in 2018, including:


DC Metro Area

New York


United Kingdom

The IAM Patent 1000 ranks the world's leading patent services providers in key jurisdictions around the globe. Research for the guide was conducted over several months by a team of full-time analysts and involved more than 1,500 interviews with patent specialists across the world.

With over 180 IP lawyers and patent professionals, holding over 220 technical degrees, Baker Botts has an incredibly deep bench of practitioners with a wealth of experience in patent litigation, patent prosecution and post-grant proceedings. Baker Botts’ IP practice also authors the PTAB Trials Blog, which provides a unique perspective on news, trends and analysis of PTAB proceedings as they evolve and the impact the proceedings have on the patent litigation landscape.

Please click to view Baker Botts' full list of rankings in the IAM Patent 1000.

Next Story / OUR LAWYERS

The SALT Show Podcast - Wayfair Supreme Court Edition

Did you know that there is an entertaining and informative weekly podcast covering state and local tax issues? Well there is: The SALT Show sponsored by Baker Botts LLP. Episodes are released weekly on iTunes and Stitcher. Subscribe now and stay up-to-date during your commute, jog, or wherever you enjoy podcasts. Unsure? Download the latest episode to hear in-depth analysis of the Wayfair decision.

In these podcasts, SALT partner, Matt Hunsaker hosts lively and entertaining discussions of the latest state and local tax issues. The SALT Show includes updates on state and local tax developments from the previous week, interviews with state tax professionals, in-depth analysis of historic tax cases and key state tax principles for those just starting out, and a sprinkling of entertainment.

Matt Hunsaker provides the full spectrum of state and local tax services to clients throughout the United States. He has nationally recognized expertise in the technology and energy sectors and frequently speaks and writes on issues affecting these industries.

Baker Botts’ dynamic state and local tax practice has deep experience providing state and local tax controversy, planning, and transactional services throughout the United States.



Interested in The SALT Show podcast?
Make sure you subscribe on iTunes and Stitcher to get the latest updates!

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Wayfair Has Been Decided: Supreme Court Abolishes the Physical Presence Requirement for Nexus