The California Court of Appeal affirmed a trial court decision finding that transactions involving an Internet retailer headquartered in Brisbane, California, were subject to local use tax, rather than local sales tax, because title in the transactions at issue passed outside California. The court explained that when a retail seller delivers goods to a common carrier at an out-of-state warehouse for shipment to a customer in California, title will pass to the buyer at the time and place that the retailer delivers the goods to the carrier, absent an agreement to the contrary.


City of Brisbane v. Cal. Dep’t of Tax & Fee Admin., No. A151168 (Cal. Ct. App. Nov. 14, 2018) (unpublished).

On June 21, 2018, the US Supreme Court struck down the “physical presence rule” of Quill and National Bellas Hess which barred states from imposing sales tax collection requirements on certain out-of-state sellers. This decision is expected to have a significant impact on online sales across the country.

The case, South Dakota v. Wayfair, is the first sales tax jurisdiction case heard by the US Supreme Court in 25 years.

The physical presence rule challenged in this case has long been criticized as giving out-of-state sellers an advantage. In its opinion, the Supreme Court held that over time, the physical presence rule became further removed from economic reality and resulted in significant revenue losses to the States. Additionally, the court held that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause.

Read the Wayfair Opinion

Read the full opinion in South Dakota v. Wayfair here. Additional insight and analysis will be added to this post throughout the week.


About the Case

  • Title:   South Dakota v. Wayfair, Inc., et al.
  • Supreme Court Decision: No. 17–494.
  • Decision Below: State v. Wayfair Inc., 901 N.W.2d 754 (2018) (PDF)
  • Listen: Oral Argument Audio.

The Wayfair case re-examines the Supreme Court’s 1992 holding of Quill v. North Dakota, in which the court ruled that states could not require mail order retailers that lack a physical presence in the state to collect sales tax from their customers. The Quill decision protects Internet retailers that lack physical presence from being forced to collect tax on online sales.


Post-Wayfair Oral Argument Webcast

On April 18, 2018, the Tax Executives Institute (TEI) and Thomson Reuters hosted a two-hour webcast entitled “South Dakota v. Wayfair – Insights on the Oral Argument.”  Eversheds Sutherland Partner Jeff Friedman was among the panelists who addressed the issues raised by Wayfair and provided commentary on the oral arguments.

View Details and listen to the webcast replay now.


Wayfair Case Background

Prior Cases

In 1967, the US Supreme Court held that the Commerce Clause prohibits a state from requiring catalog retailers to collect sales taxes on sales unless the retailer has a physical presence there. Nat’l Bellas Hess v. Dep’t of Rev. of Ill., 386 U.S. 753 (1967).

In 1992, the US Supreme Court declined to overrule the physical presence requirement of Bellas Hess in a state sales tax case involving a  mail-order catalog seller. Quill Corp. v. North Dakota, 504 U.S. 298 (1992). In Wayfair, South Dakota has brought a similar case against three online sellers – Wayfair Inc., Overstock.com, Inc., and Newegg Inc.

More: See the Supreme Court docket for complete case filings.


Photos from Oral Arguments

Eversheds Sutherland partners in the Supreme Court Bar line ahead of the Wayfair oral arguments.
Eversheds Sutherland partners in the Supreme Court Bar line ahead of the Wayfair oral arguments.
Eversheds Sutherland partner Todd Lard and others in the Supreme Court Bar line.
Eversheds Sutherland partner Todd Lard and others in the Supreme Court Bar line.
The Supreme Court Bar line inside ahead of the Wayfair oral arguments.
The Supreme Court Bar line inside ahead of the Wayfair oral arguments.
Eversheds Sutherland partners Jeffrey A. Friedman and Michele Borens in the Supreme Court Bar line ahead of the Wayfair oral arguments.
Eversheds Sutherland partners Michele Borens and Jeffrey A. Friedman in the Supreme Court Bar line ahead of the Wayfair oral arguments.
The public line in front of the Supreme Court around 6 a.m.
The public line in front of the Supreme Court around 6 a.m.
The public line in front of the Supreme Court around 6 a.m.
The public line in front of the Supreme Court around 4:30 a.m.
The public line in front of the Supreme Court around 7 a.m.
The public line in front of the Supreme Court around 7 a.m.
This reporter did two newscasts from the Supreme Court before the South Dakota v. Wayfair oral argument.
This reporter did two newscasts from the Supreme Court before the South Dakota v. Wayfair oral argument.
The public line in front of the Supreme Court around 7 a.m.
The public line in front of the Supreme Court around 7 a.m.
Spectrum News NY1 reporter Samantha-Jo Roth reporting live from the line in front of the Supreme Court.
Spectrum News NY1 reporter Samantha-Jo Roth reporting live from the line in front of the Supreme Court.
The public line in front of the Supreme Court waiting to get into the Wayfair oral arguments.
The public line in front of the Supreme Court waiting to get into the Wayfair oral arguments.
The Supreme Court Bar line walking inside for the South Dakota v. Wayfair oral arguments.
The Supreme Court Bar line walking inside for the South Dakota v. Wayfair oral arguments.
The Supreme Court Bar line walking inside for the South Dakota v. Wayfair oral arguments.
The Supreme Court Bar line walking inside for the South Dakota v. Wayfair oral arguments.
The Supreme Court Bar line waiting for the South Dakota v. Wayfair oral arguments.
The Supreme Court Bar line waiting for the South Dakota v. Wayfair oral arguments.
Long lines around 10:30 a.m. in front of the Supreme Court.
Long lines around 10:30 a.m. in front of the Supreme Court.

Media Coverage:


About Eversheds Sutherland SALT:

As state and local jurisdictions in the US evolve their tax systems and engage in increasingly sophisticated enforcement and litigation strategies, businesses need sound state and local tax (SALT) advice more than ever before. Eversheds Sutherland’s SALT practice is committed to delivering innovative solutions that meet the needs of your business. Read more.

The New York Legislature passed its 2018-2019 Fiscal Year budget on March 30, 2018, which is expected to be signed into law by Governor Cuomo. The Legislature responded to the Tax Cuts and Jobs Act (TCJA) passed by the United States Congress late last year by excluding IRC § 965 repatriated income from New York taxable income. However, the final budget failed to address other TCJA provisions, such as the tax on global intangible low-taxed income (GILTI) and the interest expense limitation under IRC § 163(j). Thus, New York will conform to these federal tax changes.

View the full Legal Alert.

During the second half of 2017, California expanded its partial sales and use tax manufacturing and research and development exemption to include electric generation and distribution equipment. The legislative changes are particularly favorable to businesses engaged in electric generation through the use of renewable energy sources.

The California Department of Tax and Fee Administration (CDTFA) has issued a notice inviting stakeholders to participate in an interested parties meeting (IPM) scheduled for April 11, 2018, to discuss whether the CDTFA should undertake a regulatory project to amend its corresponding regulation to implement and apply the statutory changes and, if so, to what extent.

In their article for Law360, Eversheds Sutherland attorneys Carley Roberts, Robert Merten and Jessica Allen summarize the sales and use tax exemption’s scope and qualifying requirements, the 2017 legislative changes to the exemption, the CDTFA’s proposed amendments and why stakeholders may want to participate in the IPM process.

View the full article.

On November 1, 2017, the District of Columbia will begin implementing a new sales and use tax exemption application process for Qualified High Technology Companies (QHTCs). The new application procedure signifies a shift to essentially a pre-certification process and creates new documentation requirements for companies seeking QHTC benefits. Key considerations include:

  • Companies will now be required to file an annual online application in order to obtain the QHTC Exempt Purchase Certificate. The current Exempt Purchase Certificates will expire on January 31, 2018.
  • In addition to questions relating to the statutory QHTC eligibility requirements, the District requires that companies state the number of QHTC employees hired and jobs created, along with the number who are District residents. These questions may have been formulated to gather information to determine the effectiveness of the QHTC program.
  • Because taxpayers have previously self-certified as QHTCs, the Office of Tax and Revenue may reject companies’ applications now, rather than audit them later.

View the full Legal Alert.

On September 16, 2017, California Governor Jerry Brown signed Assembly Bill 131, a budget trailer bill clarifying a number of provisions related to the roles of California’s two new tax agencies, the California Department of Tax and Fee Administration (CDTFA) and the Office of Tax Appeals (OTA), which were created to perform many of the California State Board of Equalization’s (BOE) previous duties by the Taxpayer Transparency and Fairness Act of 2017. Key clarifications include:

  • The CDTFA will conduct appeals conferences related to sales and use taxes in the same manner as the BOE had prior to July 1, 2017, and will apply the BOE’s rules regarding appeals conferences.
  • The OTA is not to be construed as a tax court so non-lawyers will be allowed to appear on behalf of taxpayers at appeals hearings.
  • The standard of review for taxpayer appeals of OTA decisions is trial de novo in Superior Court.

View the full Legal Alert.

By Charles Capouet and Jonathan Feldman

The Massachusetts Supreme Judicial Court held that an in-state wholesaler was required to collect and remit sales tax on drop shipment sales made to Massachusetts customers. A drop shipment is a transaction in which an in-state customer purchases a product from an out-of-state retailer which then orders the product from an in-state wholesaler and directs it to deliver the product directly to the in-state customer. The Massachusetts drop shipment rule considers the in-state wholesaler to be the vendor and requires it to collect and remit the sales tax unless it proves that the out-of-state retailers were engaged in business in Massachusetts. D&H, an in-state wholesaler in such a position, questioned its liability under the drop shipment rule, arguing that the rule required the commissioner, in each transaction, to prove that the retailer was not doing business in the state. D&H also challenged the constitutionality of the rule. The court confirmed that it was the wholesaler’s burden to prove that retailers were doing business in the state as the wholesaler has “readier access to the relevant information” and bears the general burden of claiming a tax abatement. The court also held that the drop shipment rule did not violate the dormant commerce clause because: (1) even if the rule penalized wholesale suppliers with Massachusetts nexus for doing business with out-of-state retailers, the rule would result in a disadvantage, rather than an advantage, for Massachusetts retailers; and (2) the taxpayer failed to demonstrate any unconstitutional burden created by the tax itself. D&H Distrib. Co. v. Commissioner of Revenue, 79 N.E.3d 409 (Mass. 2017).

By Maria Todorova and Charles Capouet

The Rhode Island Division of Taxation ruled that a monthly or annual membership fee that allowed customers to access various benefits associated with shopping on a taxpayer’s website—including discounted shipping benefits; streaming or downloading movies and music; photo storage; and access to games and in-game content—is subject to sales and use tax. The Division reasoned that although membership fees are generally not taxable in Rhode Island, the membership fee charged by the taxpayer constituted a bundled transaction whose true object was ready access to non-taxable and taxable items. The Division also ruled that a free one-month trial subscription was not subject to sales and use tax because no consideration was paid for the transaction. Ruling Request No. 2017-01, R.I. Div. of Tax., Mar. 31, 2017.