Tax Analysts Blog

Is Connecticut Ignoring Supreme Court Precedent?

Posted on Jan 15, 2014

At the end of 2013, the Connecticut Department of Revenue Services (DRS) issued an announcement that on its face seemed relatively benign. AN 2013(19) says simply that a previously issued special notice, SN 92(19), “may no longer be relied upon.” But the announcement may have broad implications.

SN 92(19) was entitled “Effect of Quill Corp. v. North Dakota on the Collection of Use Tax by Retailers Who Engage in Business in Connecticut Only by Selling Items Through Mail Order Catalogs With Delivery by Common Carriers.” It provided guidance on the effect of the U.S. Supreme Court’s opinion in Quill on the requirement under Connecticut law that certain out-of-state retailers collect tax on sales to in-state customers.

Quill is one of the most cited state and local tax opinions of all time. It established that North Dakota could not require a mail order company, whose only contact with the state was the sale of goods through mail order catalogs with delivery by common carrier, to collect tax on sales to North Dakota customers. The Court acknowledged the burden that requirement would place on retailers and it said that a physical presence in the taxing state was needed before that state could impose collection duties on a retailer.

But states have slowing been chipping away at Quill. Even though the U.S. Supreme Court hasn't overturned the opinion and Congress hasn't passed legislation establishing a different standard for sales and use tax collection that is contrary to Quill, states seem to believe they can choose to ignore Quill.

When SN 92(19) was published in Connecticut, the state announced that it would not enforce 1989 legislation that imposed sales and use tax collection responsibilities on out-of-state retailers that have a mere “economic presence” in the state because the legislation was virtually identical to the North Dakota statute struck down in Quill. But in 2011, Connecticut enacted an affiliate nexus law, which creates a sales and use tax collection requirement for some remote sellers that have no physical presence in the state. And now Connecticut seems to be acting as if Quill doesn’t exist. Don’t even bother searching for SN 92(19) anymore. The Department of Revenue Services has taken it down.

The real question is, how does Connecticut plan to enforce sales and use tax collection requirements for out-of-state sellers? According to Louis Bucari, general counsel at the Connecticut Department of Revenue Services, the revenue commissioner, “wants to make sure that Connecticut is in the best possible position to apply the principles of nexus for purposes of this state in the broadest way possible consistent with both the commerce and due process provisions.”

But to reiterate, the U.S. Supreme Court opinion in Quill is still valid law. Simply because the Court recently denied cert in the New York "Amazon" cases that challenged the constitutionality of affiliate nexus law in no way invalidates Quill. Connecticut may think it is putting itself in the best possible position, but it is also putting out-of-state retailers in the worst possible position. Without any further guidance, retailers have no concrete sense of what will constitute nexus with the state for sales and use tax purposes and whether the state will now assert that, despite Quill, a mere “economic presence” will trigger the requirement to collect and remit sales tax. If that's the case, out-of-state retailers should proceed cautiously in Connecticut.

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