US Supreme Court to Review Physical Presence Requirement for Sales, Use Tax Collection

January 18, 2018

The US Supreme Court agreed to hear South Dakota’s challenge to Quill Corp. v. North Dakota, setting the Court up to decide whether a retailer with no physical presence in a state is required to collect and remit sales and use tax.

In agreeing on January 12, 2018, to hear South Dakota v. Wayfair, Inc.,[1] South Dakota’s challenge to the US Supreme Court’s 1992 decision in Quill Corp. v. North Dakota,[2] the Court will now reconsider whether a state may require a retailer without physical presence in the state to collect and remit sales and use tax.

In Quill, the Court interpreted the Commerce Clause in the US Constitution to hold that physical presence in a state is a prerequisite to requiring a taxpayer to collect and remit the state’s sales and use tax. States have long urged the Supreme Court to reconsider its decision because the lack of widespread physical presence among ecommerce/online retailers has changed the landscape of the consumer economy. States have also, for the most part, moved away from applying a Quill “physical presence” standard to taxes other than sales and use taxes. While Justice Anthony Kennedy recently noted that “it is unwise to delay any longer a reconsideration of the court’s holding in Quill,”[3] the Court’s decision to grant certiorari in the Wayfair case still comes as a surprise to many taxpayers.

By taking up Wayfair, the Court signals that a change to the decades-old “physical presence standard” is, at minimum, under active consideration. And whether Quill is overturned, refined, or affirmed, the impact will likely be far reaching.

We will continue to monitor the case and will update our clients and readers as new information becomes available.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

New York
Cosimo A. Zavaglia

Justin D. Cupples
Ester Lee

[1] South Dakota v. Wayfair, Inc., No. 17-494.

[2] Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

[3] Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124, 1134 (2015) (Kennedy, J., concurring).