58 LEXPERT MAGAZINE
|
SEPTEMBER
/
OCTOBER 2018
the emergence of the Internet as a distri-
bution and sales conduit. Ultimately, the
decision allowed online retailers who con-
ducted business in absentia to ignore local
taxes. As SCOTUS saw it, Quill resulted in
a "judicially created tax shelter" that pro-
duced annual losses of between $8 and $33
billion for the states.
South Dakota was one of several states
that ignored the constitutional issues sur-
rounding online retailers and enacted a
law imposing sales tax on sellers who annu-
ally delivered more than $100,000 of goods
into the state or made more than 200 deliv-
eries locally. at degree of activity, SCO-
TUS ruled, satisfied the "minimum con-
tact" requirement because "a business may
be present in a State in a meaningful way
without that presence being physical in the
traditional sense" of the term.
"e Wayfair decision seems to have
held that South Dakota's model of remote
nexus, at least, is in fact constitutional,"
Glicklich says.
And while the court did not attempt
an exhaustive definition of "minimum
contact" or stipulate the precise degree or
nature of the presence required to attract
states' sales tax jurisdiction, the overall tone
was expansive.
"e court even hinted at a new test
for substantial nexus based on 'substan-
tial virtual connections,' which would
be a type of physical presence established
via customers' computers through, for
example, cookies le on customers' hard
drives or apps downloaded onto custom-
ers' phones," he says.
e upshot is that it's not clear whether
thresholds below those in the South Dako-
ta law that drove Wayfair would be consti-
tutional. Until or unless that's clarified by
legislation or further decisions, Canadians
shipping into the US will be in a bind.
"At the oral arguments for the Wayfair
case, the suggestion was made that a single
sale would be sufficient to subject a remote
seller to sales tax in a jurisdiction," Glick-
lich said. "Since states and localities now
have an incentive to make their nexus stan-
dards as low as possible, the compliance bu-
rden for online retailers could turn out to
be mind-boggling."
Indeed, some companies may not dis-
cover that they have sales tax collection
obligations until it's too late. "We can only
hope that these laws will be draed in a
way that gives rise to the liability to collect
only aer the obligation to do so has been
determined," Citrome says.
Whether or not that's wishful thinking
remains to be seen. "Now that Pandora's
box is open, some states might even try to
collect sales taxes retroactively," he adds.
At the very least, Canadian businesses
selling online into the
US should consider
acquiring or modifying soware to track
these sales and determine their liability.
"If [businesses] wait too long the num-
bers could be crippling, even if the laws are
not retroactive," Glicklich says. "Compa-
nies should also consider contractual lan-
guage with their distributors, shippers and
others to make it clear who is responsible
for collecting the taxes."
Ultimately, Glicklich maintains, Con-
gress will have to act. "Someone's going to
have to do something to smooth this out
and establish minimums so that we can
have the type of coherence and consisten-
cy that will make it easier to comply with
these laws," he says.
Meanwhile, similar legislation may
be coming to Canada. "Québec is intro-
ducing new laws that would extend col-
lection and remittance obligations for
Québec sales tax to non-residents of the
province," Citrome says.
CANADIAN COMPANIES selling into
the United States — even those with no
physical presence in a particular state —
may now be required to collect and remit
local sales taxes.
"ere are some 10,000 different state
and local sales tax regimes in the US," said
Ted Citrome, a tax lawyer in Dickinson
Wright LLP's Toronto office. "It's going to
be a tremendous burden for companies to
track and monitor sales so they can ensure
they stay onside."
e expansion of states' taxing pow-
ers emerges from the recent decision of
the Supreme Court of the United States
(SCOTUS) in South Dakota v. Wayfair,
Inc., which expressly overturned SCO-
TUS's 1992 decision in Quill Corp. v.
North Dakota.
"Wayfair is the court's most significant
state tax decision in at least 30 years," says
Peter Glicklich, a tax lawyer in the New
York office of Davies Ward Phillips &
Vineberg LLP.
e US Constitution's commerce clause
prohibits states from imposing sales tax on
sellers who lack "minimum contacts" with
the state, a provision that Quill interpreted
as requiring a physical presence such as a
store or warehouse in the state.
However, the Quill decision preceded
Until thresholds are clarified, Canadian companies shipping to US may be subject to local regimes BY JULIUS MELNITZER
Canadian firms at risk for US taxes
PHOTO:
SHUTTERSTOCK
| SALES TAX |
THE BORDER
