Supreme Court Eliminates ‘Tax Shelter’ for Online Retailers

Munger, Tolles & Olson litigators Mark R. Yohalem and C. Hunter Hayes published an article in the June 25, 2018 issue of the Daily Journal analyzing a U.S. Supreme Court decision reversing a 51-year-old ruling allowing online-only retailers to avoid collecting sales taxes in states in which the retailers have no physical presence.

The court’s ruling in South Dakota v. Wayfair overturns the 1992 decision in Quill Corp. v. North Dakota, as well as the prior 1967 decision in National Bellas Hess v. Illinois, which online-only retailers had used to argue that they are exempted from collecting sales tax. As Mr. Yohalem and Mr. Hayes describe, the 5-4 decision “finally dismantled that tax shelter, thereby correcting a legal error, leveling the retail playing field, and ensuring the sustainability of state and local sales taxes.”

The authors detail why brick-and-mortar retailers, and state and local governments, will benefit from the Wayfair decision. “The aberrant, artificial and harmful physical presence requirement (in Quill), applicable only to the collection of sales tax, no longer exists as a narrow exception to the practical and nuanced rules that have long applied to all other state taxes with an interstate effect,” they write.

Mr. Yohalem focuses his practice on complex litigation and appeals. Mr. Hayes focuses his practice on complex civil litigation and business dispute resolution. Both attorneys, along with Donald B. Verrilli, Jr., represented the Retail Litigation Center, a trade organization that includes the country’s leading retailers, as amicus curiae in South Dakota v. Wayfair.