Tax Analysts Blog

There Is Nothing Perplexing About Quill

Posted on Feb 6, 2013

A recent post on a Florida tax lawyer blog questioned whether online retailers that pay shoppers to “advertise” on their personal web pages creates nexus for those retailers. The blog recalls an October 2012 New York Times article, which addressed the issue. According to that article, a Manhattan talent agent, on her free time, posts various fashion items to her social media sites. If her posts drive traffic to the seller of the fashion items, she is paid a fee. The fee may be a few cents per click or a promotion fee if a purchase is made. The NYT article says the talent agent makes about $50 per month from a variety of these fees.

On the question of whether the payment of fees to an individual for “advertising” services creates nexus for the company, many states would say that paying individuals to post advertisements on their Facebook or Pintrest accounts creates nexus for the retail or online company. This mirrors, in a way, the beginnings of the Amazon law. Amazon had an affiliate marketing program. Affiliate marketing is an internet-based marketing practice that rewards individuals for driving customers to a company's Web site by adding content to their Web sites that links to products and services offered by the e-commerce retailer. If a customer clicks the link on an affiliate's Web site, and the result is a sale from an e-commerce retailer, the affiliate will earn a small commission.

While the idea raises an interesting question, the blog post stuck me because of a background note by the author. The author of the blog explains that Quill Corp. v. North Dakota created a bright-line physical presence rule that a company must have a physical presence in a state before that state can require the company to collect and remit sales tax. He then says the physical presence rule in Quill created a “perplexing inquiry.”

Quill has been endlessly debated and dissected. And while I think most in the state and local tax world would tend to agree that it has created a lot of questions, Quill did create a bright-line physical presence rule. It is not often that we get bright-line rules, yet here is one of those occasions and because states are finding the rule doesn’t work in an e-commerce-based economy, they have systematically worked to break it down.

Some of the arguments can be attributed to subsequent U.S. Supreme Court precedent, which clarified the physical presence rule and gave guidance to the level of physical presence needed. But the Court has not struck down the rule or said some form of physical presence is not required before states can require retailers to collect and remit sales tax.

By saying that Quill created a perplexing inquiry gives credence to the idea that states can get around the physical presence requirement, but they can’t. Unless a contrary U.S. Supreme Court opinion is issued or federal legislation is enacted enabling states to require companies without a physical presence in the state to collect and remit tax, the physical presence requirement of Quill stands. It doesn’t matter that our shopping habits have changed since 1992 or that our increasingly borderless economy no longer fits neatly into past caselaw. Quill is valid caselaw unless and until something occurs to make it invalid.

None of this is to say that something shouldn’t happen; that federal legislation shouldn’t be enacted to require online retailers to collect and remit sales tax regardless of their level of physical presence in the taxing state. But until something does happen, we should remind ourselves that Quill is still valid law and there is nothing perplexing about it.

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