On October 24, 2018, the California Department of Tax and Fee Administration (CDTFA) held an information session on the Wayfair decision’s application in California. California’s statute says we interpret the commerce clause as is done at the federal level. So that interpretation changed with the US Supreme Court’s decision on June 21, 2018 when they found that the longstanding physical presence nexus rule of Quill (1992) is incorrect and unsound.
I attended the hearing. It was short and the CDTFA provided some helpful information about the application of Wayfair to district taxes in California, and more. They also took questions and comments. I offered a few. The CDTFA was also taking written comments. Following is what I suggested to the CDTFA in my written comments. My key concern is that if California follows the South Dakota standard, hundreds of thousands (possibly even over 1 million, and all over the world) of remote vendors are going to meet the 200 or more transactions per year due to the 39 million possible customers in California (SD has a population under 1 million in contrast). Thus, the transaction threshold should be skipped and we aim for a sales and use tax system that balances realistic enforcement activity by the CDTFA and the continued need to have California buyers self-assess and pay use tax (which will apply in fewer transactions due to larger vendors meeting the $100K per calendar year threshold).
What do you think (please read on)?
- The “physical presence rule of Quill [Corp. v. North Dakota, 502 U.S. 808 (1992)] is unsound and incorrect.”
- The physical presence standard should not be the standard for the “substantial nexus,” first part of the four-part test of Complete Auto Transit (430 U.S. 274, 279 (1977)).
- Physical presence is an “arbitrary, formalistic” measure.
- South Dakota’s sales tax collection requirement protects interstate commerce by ensuring “sufficient nexus” based on both “economic and virtual contacts” sellers have with the state. Three features of South Dakota law (S. 106 (2016)) support this: