Archive for the ‘U.S. Supreme Court’ category

South Dakota Files Petition for Writ of Cert with US Supreme Court

October 3, 2017

By: Jennifer Weidler Karpchuk

On October 2, 2017, South Dakota filed a petition for writ of certiorari with the United States Supreme Court, bringing the first facial challenge to Quill Corp. v. North Dakota in front of the Court.

As previously reported, during August the South Dakota Supreme Court held oral arguments wherein South Dakota urged the court to reject its petition, which would allow it to expeditiously file a petition for cert with the US Supreme Court.  The South Dakota Supreme Court abided and quickly affirmed a March 2017 trial court decision granting the remote seller’s motion for summary judgment, holding that the economic nexus law (SB 106) was unconstitutional and directly violated the physical presence requirement of Quill. South Dakota v. Wayfair, Inc. S.D., No. 28160.

The “Kill Quill” movement was spurred in large part by comments made by a concurring Justice Kennedy in Direct Marketing Association v. Brohl, 135 S.Ct. 1124 (2015).  Justice Kennedy criticized Quill stating that:

“The Internet has caused far-reaching systemic and structural changes in the economy, and, indeed, in many other societal dimensions…Today buyers have almost instant access to most retailers via cellphones, tablets and laptops. As a result, a business may be present in a state in a meaningful way without that presence being physical in the traditional sense of the term.  Given these changes to technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill.  A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier.”

Justice Kennedy then invited a challenge to Quill, writing: “the legal system should find an appropriate case for this Court to reexamine Quill.”

Since Justice Kennedy’s opinion, a number of state legislatures passed or considered passing legislation requiring remote vendors to collect sales tax – representing overt challenges to QuillSee, e.g., Alabama and Tennessee).  South Dakota’s law is now the first to make it in front of the US Supreme Court for review.  This case will be closely watched by the SALT community to see if it is the “appropriate case” for the Court to revisit Quill.

Crutchfield Settles; Eyes Turn to South Dakota and Alabama for Challenge to Quill

April 26, 2017

By: Jennifer Weidler Karpchuk

As our previous post explains, the U.S. Supreme Court had extended the time to file petitions for certiorari in Crutchfield Corp. v. Joseph W. Testa, Tax Commissioner of Ohio (U.S. Supreme Court Docket No. 16A774), involving the Ohio Commercial Activity Tax (“CAT”).  However, prior to the deadline, the parties agreed to forego further litigation and entered into an undisclosed settlement agreement.  As such, the Ohio Supreme Court’s decision upholding the Ohio CAT stands. See Crutchfield Corp. v. Joseph W. Testa, Tax Commissioner of Ohio, 2016 WL 6775765 (2016).

Those hoping the U.S. Supreme Court would revisit Quill through Crutchfield may be disappointed by this settlement, but should look to South Dakota and Alabama as their respective test cases challenging Quill make their way through the courts. See South Dakota v. Wayfair, Inc., et al., S.D. Cir. Ct., 6th Jud. Dist., Dkt. No. 32CIV16-000092, 03/06/2017; Newegg Inc. Notice of Appeal, Alabama Tax Tribunal.

Update on Supreme Court Retroactivity Litigation

April 6, 2017

By Adam Koelsch

As previously reported on the SALT Blawg, Chamberlain Hrdlicka attorneys Stewart M. Weintraub and Adam M. Koelsch, together with Peter L. Faber of McDermott, of Will & Emery LLP, filed in the U.S. Supreme Court an amicus brief on behalf of the American College of Tax Counsel in support of the petitioners challenging a retroactive repeal of tax legislation by the state of Michigan.  Although the petitioners and the amici had asserted various reasons for granting certiorari, the most prominent of those assertions was that the repeal, stretching seven years into the past, violates the Due Process Clause of the U.S. Constitution.

Subsequent to those submissions, the Supreme Court removed from its conference calendar the petition submitted in another pending retroactive tax legislation case from Washington state (Dot Foods, Inc. v. State of Washington), presumably to consider it jointly with the Michigan cases at a later date, and also ordered Michigan to submit a response to the petitions filed — moves widely seen as signaling that the Court is interested in addressing Due Process issue.

Michigan has since submitted its response, setting forth a novel basis for denying cert.:  that the 2014 legislation challenged by the petitioners — which repealed retroactive to 2008 a statute authorizing a three-factor apportionment election that had existed since 1970 — was a “legislative clarification” of a 2008 Business Tax statute that had supposedly mandated single-factor apportionment for all prospective years, and was therefore not retroactive at all.  Thus, according to Michigan, application of that principle of state statutory-construction law constitutes an adequate and independent state law ground to uphold the decision of the Michigan state court, thereby depriving the Supreme Court of jurisdiction to review the issue.

Not so, replied the petitioners.  IBM and Skadden Arps submitted reply briefs on March 24 and 27, respectively.  IBM’s brief challenged the assertion that the doctrine of “legislative clarification” in fact exists, and asserted that the any new law that applies to activities (or tax years) in the past is, by definition, retroactive.  Skadden Arps, in its brief, added that the Michigan Court of Appeals had never mentioned the doctrine in its decision, while explicitly acknowledging the statute’s retroactive effect, and that, in any event, “the Supremacy Clause does not allow federal retroactivity doctrine to be supplanted by the invocation of a contrary approach to retroactivity under state law.”  On March 28, a brief filed on behalf of Goodyear Tire, Deluxe Financial Services, and Monster Beverage reiterated the arguments of IBM and Skadden Arps.

The briefs for the Michigan petitioners and for the petitioners in Dot Foods will all be considered during the Court’s conference on April 13, and the Court’s decisions could be announced as early as April 17.

Here, you can find copies of:  the Michigan response briefthe IBM reply briefthe Skadden Arps reply brief, and the Goodyear et al. reply brief.

U.S. Supreme Court Extends Time to File Petitions for Certiorari in Ohio Commercial Activity Tax Case

February 22, 2017

By Jennifer Weidler Karpchuk

By Order dated January 31, 2017, the United States Supreme Court granted Crutchfield Corporation (“Crutchfield”) an extension of time until April 16, 2017 to file a petition for certiorari for what could be a precedential decision if the Court decides to grant it. See Crutchfield Corp. v. Joseph W. Testa, Tax Commissioner of Ohio (U.S. Supreme Court Docket No. 16A774).  During November 2016, the Ohio Supreme Court ruled for the State, upholding its commercial activity tax (“CAT”). See Crutchfield Corp. v. Joseph W. Testa, Tax Commissioner of Ohio, 2016 WL 6775765 (2016). The CAT is a gross receipts tax that replaced Ohio’s corporate income tax. Pursuant to the CAT, a company with more than $500,000 of Ohio sales has nexus with the state such that it is subject to the tax.

Crutchfield appealed from imposition of the CAT upon revenue it earned from sales of electronic products within Ohio. Crutchfield is based outside of Ohio, maintains no employees in Ohio, and maintains no facilities in Ohio. The sole business that Crutchfield conducts in Ohio is via the shipment of goods from outside the state to consumers within the state using the United States Postal Service or common-carrier delivery services. Crutchfield contested the issuance of CAT assessments contending that substantial nexus within a state is a necessary prerequisite to imposing the tax pursuant to the United States Constitution’s dormant Commerce Clause and that Crutchfield lacked substantial nexus with Ohio since it did not maintain a “physical presence” within the state.

Responding, the State advanced two (2) arguments. First, it argued that the Commerce Clause does not impose a physical presence requirement and, thus, the $500,000 sales-receipts threshold set forth by the statute satisfies the Commerce Clause’s requirement of substantial nexus. Second, the State argued that assuming arguendo the Commerce Clause does impose a physical presence standard, Crutchfield’s computerized connections with Ohio consumers involves the presence of tangible personal property in Ohio and the presence of that property on computers located in the state constitutes physical presence. The Ohio Supreme Court found in favor of the State based upon its first argument and therefore it did not address the State’s secondary argument.

At first glance, the Ohio Supreme Court’s decision stands in stark contradiction to the United States Supreme Court’s decision in Quill v. North Dakota, 504 U.S. 298 (1992), which held that for a state to subject a company to a use tax collection obligation, it must have a physical presence in the taxing state. However, the Ohio Supreme Court distinguished Quill in a number of ways. Primarily, the tax at issue in Quill was a sales and use tax, whereas the tax at issue in Crutchfield was a business privilege tax. The Ohio Supreme Court found that Quill’s holding does not apply to business privilege taxes. This is not the first time a court has drawn such a distinction. See Couchot v. State Lottery Comm., 659 N.E.2d 1225 (Ohio 1996) (“There is no indication in Quill that the Supreme Court will extend the physical-presence requirement to cases involving taxation measured by income derived from the state”); Capital One Bank v. Commr. of Revenue, 899 N.E.2d 76 (Mass. 2009) (declining to “expand the [United States Supreme] Court’s reasoning [in Quill] beyond its articulated boundaries” and upholding imposition of tax on out-of-state banks in relation to in-state servicing of credit cards based on the volume of business conducted and profits realized); MBNA Am. Bank, N.A. v. Indiana Dept. of State Revenue, 895 N.E.2d 140 (Ind. Tax 2008) (“Based on [Quill] and a thorough review of relevant case law, this Court finds that the Supreme Court has not extended the physical presence requirement beyond the realm of sales and use taxes”); KFC Corp. v. Iowa Dept. of Revenue, 792 N.W.2d 308 (Iowa 2010) (“We * * * doubt that the United States Supreme Court would extend the ‘physical presence’ rule outside the sales and use context of Quill ”).

The United States Supreme Court has not addressed the physical presence nexus standard issue since its landmark decision in Quill twenty-five (25) years ago. Many argue that the Supreme Court in Quill could not and did not anticipate the internet boom and, with it, the vastly different way that business would be conducted. Since then, the Court has denied certiorari for every case since Quill where nexus was at issue, e.g., Tax Com’r of State v. MBNA America Bank, N.A. 640 S.E.2d 226 (W. Va. 2006), cert. denied, 551 U.S. 1141 (2007); Capital One Bank v. Commissioner of Revenue, 9 N.E.2d 76 (Mass. 2009), cert. denied, 557 U.S. 919 (2009); Geoffrey, Inc. v. South Carolina Tax Com’n, 37 S.E.2d 13 (S.C. 1993), cert. denied, 510 U.S. 992 (1993); Lanco, Inc. v. Director, Div. of Taxation, 908 A.2d 176  (2006), cert. denied, 551 U.S. 1131 (2007); see also, Direct Marketing Ass’n v. Brohl, 135 S.Ct. 1124, 1134-1135 (2015) (Kennedy, J., concurring) (“The Internet has caused far-reaching systemic and structural changes in the economy, and, indeed, in many other societal dimensions. Although online businesses may not have a physical presence in some States, the Web has, in many ways, 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 storefront…Today buyers have almost instant access to most retailers via cell phones, tablets, and laptops. As a result, a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the term. Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill.”). If the United States Supreme Court grants Crutchfield’s petition for certiorari, we might finally receive an answer to Quill’s application in the age of the internet.

Chamberlain Hrdlicka Attorneys Submit Supreme Court Amicus Brief in High-Profile Tax Retroactivity Case

January 14, 2017

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Just a few weeks ago, Chamberlain Hrdlicka attorneys Stewart M. Weintraub and Adam M. Koelsch, together with Peter L. Faber of McDermott, Will & Emery LLP, filed in the U.S. Supreme Court an amicus brief on behalf of the American College of Tax Counsel in support of the petitioners challenging the Michigan Court of Appeals’ September 2015 decision in Gillette Commercial Operations N. Am. v. Dep’t of Treasury.

In the amicus, the attorneys argued that the Court of Appeals  had misapplied the holding of the Supreme Court in United States v. Carlton in order to sustain a retroactive repeal of tax legislation relied upon by the state. According to the attorneys, that retroactive repeal, stretching seven years into the past, violates the Due Process Clause of the U.S. Constitution.

The petitions had been scheduled for a conference on January 19.  The Court removed the petitions, as well as the petition submitted in the case of Dot Foods, Inc. v. State of Washington, from the conference calendar and ordered Michigan to respond to the petitions by March 13.  Dot Foods, Inc. is another retroactivity case in which Weintraub and Faber had raised similar due process arguments in an amicus brief submitted for the College.

In light of these actions, it is possible that the Court may be interested in reviewing these cases. If the Court were to grant certiorari, it is hoped that the subsequent opinion would provide some much needed guidance regarding the ability of state legislatures to enact retroactive tax changes.

A copy of the Brief is available here.