Supreme Court Justice Opens Door for E-Fairness

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A United States Supreme Court ruling that sent a challenge to a Colorado use tax law back to federal court has sparked hope among proponents of e-fairness — and state revenue departments. The March 3 ruling was in regard to a Direct Marketing Association challenge of a Colorado use tax law, which asks remote sellers to report Colorado sales to the state for use tax enforcement. While the case, Direct Marketing Association v. Brohl, was sent back to Colorado on what is being termed in media reports as a technical ruling, it is a concurring decision by Justice Anthony Kennedy that has become the headline.

In his opinion, Justice Kennedy wrote that it was time to reconsider the 1992 Quill vs. North Dakota Supreme Court decision, which opponents of e-fairness usually cite when arguing that states have no right to require remote sellers to collect and remit sales tax unless those sellers have a physical presence in the state.

“Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill,” Kennedy wrote. “A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier.”

Kennedy noted that the Internet has created “far-reaching systemic and structural changes in the economy,” and even if an online business does not have a physical presence in a state, the Internet has “brought the average American closer to most major retailers. A connection to a shopper’s favorite store is a click away — regardless of how close or far the nearest store front is.”

Though the Direct Marketing case was not the right one in which to consider the issue, Kennedy said that the “legal system should find an appropriate case for this Court to re-examine” the issue of remote sales tax collection.