Course Name: Out-of-State Sellers Beware: The U.S. Supreme … · 2019-04-25 · Speakers: David E....

Course Name: Out-of-State Sellers Beware: The U.S. Supreme Court Overrules the Quill v. North Dakota Physical Presence Standard for Establishing Nexus in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)

Speakers: David E. Colmenero, Meadows Collier LLP Alex Pilawski, Meadows Collier LLP Course Description: In a remarkable decision with far-reaching implications for out-of-state sellers, the U.S. Supreme Court recently overruled its 1992 holding in Quill v. North Dakota, paving the way for states to require out-of-state sellers to collect and pay the respective state and local taxes. With many states desperately searching for additional sources of revenue, the floodgates have undoubtedly been opened. Yet many questions remain to be answered. This presentation discusses the actual and potential implications of the Wayfair decision including recent state-level activities by various states to implement it, with a particular emphasis on developments within the State of Texas. This presentation will also discuss significant areas of controversy likely to arise as a result of the Wayfair decision. Learning Objectives: Participants will:

• Receive an overview of events leading up to the Wayfair decision. • Receive an overview of the U.S. Supreme Court’s holding in Wayfair. • Learn of recent state-level developments following the Wayfair decision. • Learn of significant areas of uncertainty and potential controversy likely to

arise as a result of the Wayfair decision. Category: Basic/Technical Prerequisites: None

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Out-of-State Sellers Beware: The U.S. Supreme Court Overrules the Quill v. North Dakota Physical Presence Standard for Establishing

Nexus in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)

901 Main Street, Suite 3700Dallas, TX 75202

214.744.3700 800.451.0093fax 214.747.3732

[email protected]@meadowscollier.com

www.meadowscollier.com

Presented By:

David E. Colmenero, CPA, J.D., LL.M. Alex J. Pilawski, J.D.

Copyright © Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P. All rights reserved.

Dallas CPA Society Convergence 2019Monday, April 29, 2019 – Frisco, Texas

2Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P.

How Did We Get Here?

• National Bellas Hess, Inc. v. Dep’t. of Rev. ofthe State of Ill., 386 U.S. 753 (1967)

• Quill Corp. v. North Dakota, 504 U.S. 298(1992)

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“What is the Internet anyway?”

[INSERT VIDEO CLIP]


State Attempts to Circumvent Quill:• Due to Wide-Spread Dissatisfaction Among States with the

Quill Standard, States Have Made Several Attempts toDistinguish or Limit Quill Including:

(i) De Minimis Issues: All states have taken a narrow view of whatconstitutes a De Minimis physical presence;

(ii) Limited Application: Some states have declined to apply Quill totaxes other than sales or use tax;

a) Substantial Economic Presence: Some states have adopted a“substantial economic presence standard” for taxes other thansales or use tax;

b) Factor Nexus: Nexus established based on three-factorapportionment formula;


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(iii) Affiliate Nexus: States have developed different theories forwhat constitutes “physical presence” including:

a) “Affiliate” or “Attributional” Nexus;

b) Click-Through Nexus legislation;

c) Physical presence through “cookies”;

(iv) Notice and Reporting: Recently, some states have begun toimpose notice and reporting requirements on sellers;

(v) Federal Legislation: States have consistently urged Congressto overrule Quill by Statute;

(vi) Streamlined Sales Tax Agreement: Following Quill, severalstates also undertook the Streamlined Sales Tax Project toestablish uniform taxation rules hoping to encourageCongress to overrule Quill.



Streamlined Sales Tax Agreement

• First organized as the “Streamlined Sales TaxProject” in March 2000.

• The Project was intended to simplify andmodernize sales and use tax collection byminimizing the differences between memberstate policies and practices.

• The Project was eventually dissolved when theStreamlined Sales Tax Agreement (“SSTA”)was enacted in 2005.

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• The Agreement provides 4 major requirementsfor member states to simplify their state andlocal tax codes:

1. State Level Administration

• All sales taxes are remitted to a single agency with a singlereturn.

2. Uniform Tax Base

• All goods and services are taxed and exempted the sameway.

• Each state retains the choice as to whether something istaxable and at what rate it is taxed.


(Cont’d)

3. Simplified Tax Rates

• All of a state’s taxing jurisdictions use the same rate.

4. Uniform Sales Sourcing Rules

• “Origin Sourcing” – for an in-state sale, the seller collectstax at the vendor’s location rate.

• “Destination Sourcing” – for sales from an out-of-stateseller, the seller collects tax at the applicable statewiderate.

• As of July 2018, there are 23 “Full Members” of the SSTA,and 1 “Associate Member” (not all requirements satisfied,but the overall intent of the SSTA has been implemented).


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5. Provides for Certified Software and CertifiedServices Providers:

• Certified Service Provider: “A CSP is an agent certifiedunder the Streamlined Sales and Use Tax Agreement toperform all the seller's sales and use tax functions, otherthan the seller's obligation to remit tax on its ownpurchases. A CSP is designed to allow a business tooutsource most of its sales tax administrationresponsibilities.”

(Cont’d)



• Certified Automated System: “A CAS is software certifiedunder the Streamlined Sales and Use Tax Agreement thatis designed for a seller that wants to use certified taxcalculation software while keeping the responsibility forfiling returns and remitting the tax. The software system ofa CAS interfaces with the seller's accounting system to:

1. identify which products and services are taxable,

2. apply the appropriate tax rate,

3. maintain a record of the transaction, and

4. determine the amount of tax to report and pay to theStreamlined member states.”

(Cont’d)


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Streamlined Sales Tax Agreement –Member States

• Arkansas

• Georgia

• Indiana

• Iowa

• Kansas

• Kentucky

• Michigan

• Minnesota

• Nebraska

• Nevada

• New Jersey

• North Carolina

• North Dakota

• Ohio

• Oklahoma

• Rhode Island

• South Dakota

• Tennessee (Associate)

• Utah

• Vermont

• Washington

• West Virginia

• Wisconsin

• Wyoming


Congressional Action/Inaction

Public Law 86-272

• In 1959, Congress passed Public Law 86-272, whichspecifically related to a state’s ability to impose netincome taxes on certain income derived from interstatecommerce.

• Public Law 86-272 generally prevents states fromimposing a net income tax on certain taxpayers whoseonly activities in the taxing state are the solicitation oforders for sales of tangible personal property which aresent outside the state for approval or rejection and, ifapproved, are filled by shipment or delivery from a pointoutside the state.

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Marketplace Fairness Act

• The Marketplace Fairness Act of 2017 is proposedlegislation, that would enable state governments tocollect sales and use taxes from online and catalogretailers with no physical presence in their state.

• The bill has been introduced several times (in 2011,2013, 2015, and 2017). However, it has not beenenacted yet, despite previously passing through the USSenate.



Marketplace Fairness Act

• The Act applies to (1) each member of the SSTA, or (2)any state that meets a set of 5 “simplification mandates”similar to the requirements of SSTA member states:

– States must notify retailers in advance of any tax rate changes withinthe state;

– States must designate a single state organization to handle sales taxregistrations, filings, and audits;

– States must establish a uniform tax base for use throughout the state;

– States must use “destination sourcing” to determine sales tax rates forpurchases from out-of-state retailers; and

– States must provide free software for managing sales tax compliance,and hold retailers harmless for errors resulting from state-providedsystems and data.

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Notice and Reporting Requirements

Direct Mktg. Ass’n. v. Brohl, 135 S. Ct. 1124 (2015)

– Facts:

• Colorado passed a law requiring retailers that do not collectsales and use tax to do the following:

– Notify Colorado customers of their use-tax liability; and

– Report tax-related information to those customers and to theColorado Department of Revenue.

• Direct Marketing was a trade association of businesses,many of which fell subject within the scope of this law. Assuch, Direct Marketing challenged the constitutionality ofthe law.



Direct Mktg. Ass’n. v. Brohl, 135 S. Ct. 1124 (2015)

– Holding:

• The Court’s holding in this case largely concerns whetherthe District Court had jurisdiction to hear the suit; theSupreme Court determined that it did.

• However, although the majority opinion expressed no viewon the merits of Direct Marketing’s claim, this decision isimportant because of Justice Kennedy’s concurrence,which explicitly called for a reexamination of the Court’sholdings in National Bellas Hess and Quill.

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• J. Kennedy’s Concurrence

– “In Quill, the Court should have taken the opportunityto reevaluate Bellas Hess not only in light ofComplete Auto but also in view of the dramatictechnological and social changes that had takenplace in our increasingly interconnected economy.There is a powerful case to be made that a retailerdoing extensive business within a State has asufficiently “substantial nexus” to justify imposingsome minor tax-collection duty, even if that businessis done through mail or the Internet…This argumenthas grown stronger, and the cause more urgent, withtime.”



• J. Kennedy’s Concurrence (Cont’d)

– “Given these changes in technology and consumersophistication, it is unwise to delay any longer areconsideration of the Court’s holding in Quill…Thelegal system should find an appropriate case for thisCourt to reexamine Quill and Bellas Hess.”

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South Dakota v. Wayfair, Inc.138 S. Ct. 2080 (2018)

• Facts:

– In 2016, in response to J. Kennedy’s concurrence inDirect Marketing, South Dakota introduced S.B. 106,which requires out-of-state sellers to collect SouthDakota sales tax, as if the seller had physicalpresence in South Dakota, if the seller either:

• Delivers more than $100,000 of goods or services intothe State; or

• Engages in 200 or more separate transactions for thedelivery of goods or services into the State.



• Facts:

– S.B. 106 also precluded retroactive application of thelaw.

– Following the enactment of S.B. 106, South Dakotabrought suit against Wayfair Inc., Overstock.com,and Newegg (“Respondents”), seeking a declarationthat S.B. 106 was valid and applicable to thesecompanies, as well as injunctive relief requiringRespondents to register for sales and use taxlicenses in South Dakota.

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• Holding:

– The Court first reviewed its jurisprudence concerningthe Commerce Clause, noting that the twoboundaries of a state’s authority to regulate interstatecommerce were (1) states may not discriminateagainst interstate commerce, and (2) states may notimpose undue burdens on interstate commerce.

– The Court noted that these boundaries were thefoundation of its decision in Complete Auto, whichcreated the four-part test for tax purposes describedabove and still used today.



• Holding:

– After describing the National Bellas Hess and Quilldecisions, and noting that the Court’s decision inQuill was based solely on stare decisis, the Courtdetermined that the physical presence test wasinherently flawed for the following reasons:

• The Complete Auto test does not require physicalpresence to establish substantial nexus;

• Quill “creates rather than resolves market distortions”;and

• Quill “imposes the sort of arbitrary, formalisticdistinctions that the Court’s modern CommerceClause precedents disavow.”

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• Complete Auto does not require physicalpresence:

– The Court stated that the substantial nexusrequirement of the Commerce Clause is closelyrelated to the “minimum connection” requirement ofthe Due Process Clause, which does not requirephysical presence.

– In Quill, the Court expressed concern regarding anundue burden created by administrative compliancecosts. The Court here stated that this concern is“largely unrelated to whether a company happens tohave a physical presence in a State.”



• Quill creates rather than resolves marketdistortions:

– The Court stated that the Commerce Clause isintended to put businesses on an even playing field.However, according to the Court, the physical presencetest “guarantees a competitive benefit to certain firmssimply because of the organization form they choose”.

– “…Quill has come to serve as a judicially created taxshelter for businesses that decide to limit their physicalpresence and still sell their goods to a State’sconsumers—something that has become easier andmore prevalent as technology has advanced.”

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• Quill imposes arbitrary, formalistic distinctionsthat modern Commerce Clause precedentsdisavow:

– The Court stated that Quill treats economicallyidentical actors differently, and for arbitrary reasons.

– The Court then provided this example:

• Two businesses sell furniture online; one with a fewitems in South Dakota, and one with a largewarehouse just across the border in Nebraska.

• The first business must collect and remit sales tax toSouth Dakota, while the second has no physicalpresence and therefore is not required to do so.



• Holding:

– After determining that Quill was inherently flawed, theCourt held that it cannot be upheld solely on the basisof stare decisis.

“…stare decisis is not an inexorable command…Here, staredecisis can no longer support the Court’s prohibition of a validexercise of the States’ sovereign power” because theprevalence and power of the Internet have “changed thedynamics of the national economy.”

– The Court stated that arguments for stare decisis mustbe founded on “legitimate reliance concerns”; however,in this case, businesses are “in no position to found aconstitutional right…on the practical opportunities fortax avoidance.”

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• Holding:

– After overturning its decision in Quill, the Court statesthat the inquiry for determining substantial nexus iswhether the taxpayer “avails itself of the substantialprivilege of carrying on business in that jurisdiction.”

– The Court applies this standard to S.B. 106 todetermine that it is a constitutional application of thesubstantial nexus requirement.



• Application to S.B. 106:

– While not deciding if other Complete Auto factors weresatisfied, the Court highlighted the protections afforded tosmaller businesses through the following characteristics:

• The law is not retroactive;

• The law only applies where a “considerable amount ofbusiness” is done in the State; and

• South Dakota is a party to the Streamlined Sales and UseTax Agreement.

– The Court states that these features appeared designedto prevent discrimination against or undue burdens uponinterstate commerce.

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Questions Following Wayfair

• How will Wayfair affect state treatment ofincome taxes?

– Several states (including Texas) previously based their“substantial nexus” determination for state income taxeson the Court’s holding in Quill.

– The Wayfair decision may completely change how statesview the application of state income tax.

• Should taxpayers consider voluntary disclosureprograms/amnesty programs?


• On June 27, 2018, the Texas Comptrollerissued initial guidance regarding the Wayfairdecision.

• “We are reviewing agency rules that needamending to, for example, explain the amount ofeconomic nexus in sales and/or transactionsrequired to create a safe harbor for smallsellers. We intend to adopt new rules under ourcurrent legal authority early in 2019 ....”

Texas Comptroller’s Response to Wayfair

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• Notably, the Comptroller has stressed that thesechanges “would not include any retroactiveapplication of the new law to remote sellers thathave no physical presence in Texas.”

– Does the Comptroller have statutory authority toeffectively adopt an substantial economic presencestandard for sales tax purposes?

– How will this apply to taxes other than sales tax (e.g.,franchise tax)?

– How will this apply to entities that make no sales?



• Amendment to Rule 3.286 – “Seller’s andPurchaser’s Responsibilities”

– Purpose is to implement Wayfair Decision

• Restores the permit and collection requirementsin the Tax Code that were unconstitutional prior toWayfair

– Tex. Tax Code 151.107(a)(4), (a)(5)

– Effective January 1, 2019

– Requires that “remote sellers” obtain a permitand start collecting Texas sales tax on October1, 2019


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– Adds the following activities to (a)(4) “Engaged inbusiness”

• (I) engages in regular or systematic solicitation of sales of taxableitems in this state by the distribution of catalogs, periodicals,advertising flyers, or other advertising, by means of print, radio, ortelevision media, or by mail, telegraphy, telephone, computer database, cable, optic, microwave, or other communication system forthe purpose of effecting sales of taxable items

• (J) solicits orders for taxable items by mail or through other mediaincluding the Internet or other media that may be developed in thefuture




– (a)(4)(M):

• A broadcaster, printer, outdoor advertising firm, advertisingdistributor, or publisher that broadcasts, publishes, displays,or distributes paid commercial advertising in this state thatis intended to be disseminated primarily to consumerslocated in this state and is only secondarily disseminated tobordering jurisdictions, including advertising appearingexclusively in a Texas edition or section of a nationalpublication, is considered for purposes of this subsection tobe the agent of the person placing the advertisement and isnot considered to be engaged in business in this state as aresult of those acts


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– Safe Harbor (b)(2)1. Must be a “Remote Seller”

– Only activity in the state is described in (a)(4)(I) or (J)

2. Total Revenue in preceding twelve calendar months is less

than $500,000– Total Revenue = gross revenue from the sale of tangible personal

property and services for storage, use, or other consumption in thisstate…

– Look back analysis must be done each month – must obtain permitno later than the first day of the fourth month after the month inwhich a remote seller exceeds the safe harbor amount

– Comptroller may consolidate total revenue of sellers engaged inconduct to circumvent safe harbor amount



• Marketplace Platforms: “We suggest theLegislature ... [a]mend the definition of ‘seller’and ‘retailer’ ... to include marketplace platformsused by third-party sellers and provide adequateliability protection for the marketplaces thatcollect and remit for those sellers.”

Texas Comptroller Press Release, Wayfair andthe Ability of Texas to Require Remote Sellersto Collect Sales and Use Taxes (July 5, 2018)


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HB 1525 (Rep. Burrows) and SB 890 (Sen. Nelson):Marketplace Providers

• Companion bills addressing Marketplace Providers inlight of Wayfair

• Requires a marketplace provider to:

1. Certify to each marketplace seller that the provider assumes therights and duties of a seller/retailer under Chapter 151 of the TaxCode;

2. Collect the taxes imposed on the sales of taxable items madethrough the marketplace;

3. Report and remit taxes imposed on sales made through themarketplace.

Pending Texas Legislation Following Wayfair


HB 1525 (Rep. Burrows) and SB 890 (Sen. Nelson):Marketplace Providers

• Marketplace provider liability:

“(g) Except as provided by Subsection (h), a marketplace provider is not liable forfailure to collect and remit the correct amount of taxes imposed under this chapter ifthe marketplace provider demonstrates that the failure resulted from the marketplaceprovider ’s good faith reliance on incorrect information provided by the marketplaceseller. The marketplace seller is liable for a deficiency resulting from incorrectinformation provided by the marketplace seller.

(h) A marketplace provider and marketplace seller that are affiliates or associates,as defined by Section 1.002, Business Organizations Code, are jointly and severallyliable for a deficiency resulting from a sale made by the marketplace seller throughthe marketplace."

Note: Both bills are pending in committee as of April 5, 2019.


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• Local Taxes: “We suggest the Legislature ... [a]mendTax Code sec. 151.059 ... which currently allows anonresident (remote) seller to pay a fee based on aweighted average local sales and use tax rate in lieu ofcollecting local sales and use tax based on actual localtax rates. This statute currently only applies to a changein collection responsibilities based on the passage offederal legislation, not to changes in federal law basedon a court case such as Wayfair.”

Texas Comptroller Press Release, Wayfair and theAbility of Texas to Require Remote Sellers to CollectSales and Use Taxes (July 5, 2018)



HB 2153(Rep. Burrows): Single Local Tax Rate

• Gives remote sellers the option of collecting either (i) theapplicable local taxes due on sales into the State; or (ii) asingle local use tax rate.

• The single local use tax rate would be equal to theestimated average rate of local sales and use taxesimposed in this state during the preceding state fiscalyear. This single local use tax rate is expected to beapproximately 1.75%.


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HB 2153(Rep. Burrows): Single Local Tax Rate

• Permits a purchaser to annually apply for a refund of anyamount by which the elective tax rate exceeds theamount the purchaser would have paid if that tax hadbeen computed using the actual local tax amount due.

• States that a purchaser is not liable for any additionalamount of local use tax if the seller elects to use thealternative single local use tax rate and the person paysthat amount to the remote seller.



• Potential Texas Wayfair Sales Tax Issues.

• Could Local Tax Present an Undue Burden Issue forTexas?

- Texas has over 1,500 different local jurisdictions thatimpose sales/use tax in addition to the State tax;

- Texas has the largest number of local jurisdictions thatimpose sales/use tax in the U.S.;

- Many of these jurisdictions overlap other taxingjurisdictions;

- A out-of-state seller must know which local jurisdictions willimpose tax on each individual transaction.


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What Constitutes “Substantial Nexus” Following Wayfair?

• The Supreme Court in Wayfair endorsed South

Dakota’s law for substantial nexus purposes but did

not state whether a lesser threshold would suffice.

• Is there a de minimis threshold now? For states,

how low is too low?

• Can “cookie” nexus or “click-through” nexus exist

even where sales do not meet the dollar or volume

thresholds?

• What is the relevance of a physical presence forpurposes of nexus following Wayfair?


What Constitutes Undue Burden?

• The Wayfair Court noted that the “daunting complexity andbusiness development obstacles of nationwide sales taxcollection” may pose legitimate concerns in some instances,particularly for small businesses.

• What is considered a “small business”? Should the focus beon the size of the business or the number of transactions intothe state?

• Where and under what circumstances will undue burdenexist?

• What relevance does the dollar value at issue collectively orindividually have?

• Should a state tax be held to a higher level of scrutiny if thestate is not a member of the SSUTA?

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Do the Other Complete Auto Factors Have More Significance Now?

• The Court held that Complete Auto provides theapplicable standard under the U.S. CommerceClause.

• How does the fair apportionment requirement,which has traditionally been applied mostly toincome tax, apply to sales tax?

• Does it become easier to show discrimination nowthat the substantial nexus standard has beenrelaxed?


Does Affiliate/Attributional Nexus Apply?

• Under Quill, states have developed case law andpolicies that permit a state to attribute the physicalpresence of one entity in that state to another entityunder various scenarios.

• To what extent does this case law apply forpurposes of attributing the sales of one entity toanother for purposes of determining nexus?

• Can sales by one member of a combined group beattributed to other members of the combined groupso that all are deemed to have nexus?

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Will States Apply WayfairRetroactively?

• Most states have stated they will not apply Wayfairretroactively.

• What constitutes retroactive application?

• If a state cites to Wayfair at all with respect to earliertransactions, is this retroactive application?

– In litigation involving pre-Wayfair transactions, would a statecompletely ignore Wayfair?

– Can a court properly consider Quill without also consideringWayfair, given that Wayfair overruled Quill?

• When does retroactive application constitute undueburden or violate other constitutional principles?


Can States Require that Sales By Different Entities Be Combined for Determining Nexus?

• Can a state require that sales of different entities becombined for the purpose of determining nexus,particularly if the entities are related?

– Should it matter if the entities are part of a unitary group?

– Should it matter that the various entities were not created toavoid exceeding the volume or dollar threshold?

• Key issues:

– State Law – can you disregard separate entity?

– Constitutional concerns

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Should Intercompany Transactions Be Eliminated?

• How should intercompany transactions be treatedfor purposes of establishing nexus?

• Should intercompany transactions be treateddifferently for income tax purposes, as opposed tosales tax?

• Should it matter if the related entities are part of acombined group?

• Should it matter if intercompany sales areeliminated for purposes of determining the incomeor franchise tax base?

• Can you have nexus for one tax but not another?


For States That Follow the SD Approach, How Should a “Transaction” be Defined?

• What is a Transaction?

• Under what circumstances should a transaction beviewed on a contract basis rather than on individualunit basis?

E.g., Customer contracts with seller to deliver 250 items todifferent locations in a state. Is this a single transaction or 250transactions?

• Does the value of each individual item deliveredmatter?

• Texas focuses on amount of sales not number oftransactions.

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• If the state treats items as either tangible personal property orservices for taxability purposes, should they be treated in thesame manner for nexus purposes? How do you labelsoftware, digital products, licenses, etc.

• Is there an argument that the statutory definitions of TPP orsales do not apply for purposes of nexus?

• Can a state simply label a transaction as TPP or a service fornexus purposes?

• How do you characterize mixed transactions? Does it matter?

• Can a state recharacterize transactions under economicsubstance, step transaction or similar doctrines for nexuspurposes?

How Should Items Be Characterized for Nexus Purposes?


How Should Sales Be Sourced for Nexus Purposes?

• For states that follow SD’s approach, how does a taxpayerdetermine how and where items are delivered to or used?

• Problematic with software, electronic digital products andservices.

• Should the normal sourcing rules that apply for sales taxand/or franchise/income tax also apply for nexus purposes(i.e., in determining where the product was delivered to orused)?

• What if the sourcing rules for sales tax purposes differ fromthe income/franchise tax sourcing rules?

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Marketplace Platforms

• Some states, including Texas, are attemptingto use Wayfair as a basis for requiringmarketplace platforms to collect use tax onsales made by third party vendors into a hoststate.

• Does Wayfair provide the constitutionalauthority to require marketplace platformproviders to collect a state’s use tax?


Texas Tax Considerations

• How does the $500,000 threshold in Texasapply to services?

– How should services be sourced for purposes ofdetermining where they are used?

– Given that the seller is not the party using theservice, does it matter that the seller may not knowwhere the service is used?

– What relevance does the service benefit exemptionhave?

– Does it matter if the seller obtains a multi-stateservice benefit exemption certificate from a buyer?

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• Single Local Tax Rate

– The Texas Comptroller has proposedlegislation adopting a single local tax rate inlieu of collecting the various different localuse taxes, apparently out of undue burdenconcerns with respect to the local tax ratestructure in Texas.

– Can the State constitutionally requiretaxpayers to collect a single tax rate in lieu ofa local tax that may arguably beunconstitutional post Wayfair?



• What should the impact of Wayfair be onTexas franchise tax?

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• Has Bandag Licensing been overruledand, if so, to what extent?

– Bandag Licensing held that merely holding acertificate of authority to do business inTexas does not create nexus.

– Bandag Licensing was decided on the basisof Quill.



• Does owning a limited partnership interestalone now create nexus for franchise taxpurposes?

– Comptroller Rule 3.586(c)(12) states, “[A]foreign entity which is a limited partner in alimited partnership is not doing business inTexas, if that it the limited partner’s onlyconnection with Texas.”

– What effect, if any, will Wayfair have on thislong-standing Texas rule?

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• To what extent has the Joyce method ofapportionment in Texas been affected byWayfair?

– How should intercompany transactions be treated forpurposes of determining nexus in Texas?

– Should sales be viewed on an individual entity orcombined group basis?

– What if separate entities are created to avoid nexus?

– Will there be any non-nexus entities in a combinedgroup following Wayfair?


International Sellers

• Many questions also remain regarding howWayfair will apply to foreign sellers.

• While foreign sellers may now technically besubject to a state’s collection obligations, itremains to be seen whether states will be ablefor enforce these obligations, or how they will doso.

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International Sellers

• Additionally, although each Tax Treaty betweenthe United States and a foreign county hasdifferent terms, many, if not all, of these treatiesprovide no protection from sales tax obligationsfor foreign sellers.

• Finally, it remains to be seen how the Wayfairdecision will impact the imposition of tariffs onforeign sellers, and whether this may have achilling effect on these sales.

Questions?

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David E. ColmeneroPartner

Mr. Colmenero has extensive experience in litigation and practices primarily in the State TaxControversy and Litigation and State Tax Planning areas. He represents individuals, closelyheld businesses, and large corporations in all forums for Texas tax litigation, including theState Office of Administrative Hearings, District Court, the Court of Appeals and the TexasSupreme Court. He has also represented clients in IRS audits, appeals, and litigation in theUnited States Tax Court, Federal District Courts and the United States Court of FederalClaims, U.S. Courts of Appeals and the United States Supreme Court.

Mr. Colmenero was previously a tax auditor for the State of Texas and, as a lawyer, hassuccessfully represented taxpayers in contested proceedings involving sales and use tax,franchise tax, motor fuels tax, motor vehicle tax, mixed beverage taxes, employment tax andothers. Mr. Colmenero represents taxpayers through contested Texas tax proceedingsincluding audits, Independent Audit Review Conferences, administrative proceedings beforethe State Office of Administrative Hearings and in State court litigation. Mr. Colmenero hasbeen extensively involved in challenging various aspects of Texas Comptroller franchise taxassessments and refund denials and in planning business structures and businesstransactions to mitigate exposure to the revised franchise tax.

Mr. Colmenero is a Certified Public Accountant and maintains active involvement in variousprofessional legal and accounting organizations. He previously served as Chair of the TaxSection of the State Bar of Texas. He serves on the Board of Directors for the Texas Societyof CPAs, is current chair of the Comments Subcommittee for the Federal Tax PolicyCommittee of the Texas Society of CPAs, and is a member of the Texas Comptroller'sTaxpayer Advisory Group. He is a past chair of the Dallas CPA Society and past chair of boththe State and Local Tax Committee and the Tax Controversy Committee of the Tax Section ofthe State Bar of Texas. He helped form the Leadership Academy for the Tax Section of theState Bar of Texas and served as its Program Director for several years. He frequentlyspeaks on substantive and procedural tax issues involving both federal and state tax matters.

Mr. Colmenero was admitted to practice in Texas in 1997.

phone (214) 744-3700toll-free (800) 451-0093

fax (214) 747-3732 [email protected]


Alex J. PilawskiAssociate

Mr. Pilawski practices in the areas of State Tax Controversy andLitigation, State Tax Planning, and Commercial Litigation.

Mr. Pilawski's State Tax Controversy and Litigation practice focuseson representing taxpayers in disputes with the Texas Comptroller ofPublic Accounts. He has worked with taxpayers to successfullyresolve their disputes during audits, at administrative hearingsthrough the State Office of Administrative Hearings, and in statedistrict court. His Commercial Litigation practice involvesrepresenting individuals and entities in both state and federal courtin a variety of controversies including complex business disputes,securities, and health care, among others. Prior to joining the firmin 2013, he was an associate with a litigation law firm in Dallas, TX.

Mr. Pilawski was admitted to practice in Texas in 2010.

phone (214) 744-3700toll-free (800) 451-0093

fax (214) 747-3732 [email protected]

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DISCLAIMER

The information included in these slides is for discussion purposes only and should not be relied on without seeking

individual legal advice.

David E. Colmenero Partner Meadows Collier David Colmenero practices in the areas of federal and state tax litigation. He represents individuals, closely held businesses, and large corporations in IRS audits, appeals, and litigation in the U.S. Tax Court, Federal District Courts, the U.S. Court of Federal Claims, U.S. Courts of Appeals and the U.S. Supreme Court. He also represents taxpayers in disputes with the Texas Comptroller of Public Accounts and the Texas Workforce Commission. Mr. Colmenero was previously a tax auditor for the State of Texas and, as a lawyer, has successfully represented many taxpayers in contested proceedings involving sales and use tax, franchise tax, and others. He is a CPA, a popular speaker, and maintains active involvement in numerous professional legal and accounting organizations. Among many honors, he has been named a “Texas Super Lawyer-Tax” by both Texas Super Lawyers and Texas Monthly magazines in 2012-2018.

Alex J. Pilawski Associate Meadows Collier Alex Pilawski's State Tax Controversy and Litigation practice focuses on representing taxpayers in disputes with the Texas Comptroller of Public Accounts involving issues such as sales and use tax, mixed beverage tax and franchise tax. He has extensive experience working with taxpayers to successfully resolve disputes in contested proceedings through administrative hearings and in Texas state court. He also assists clients in remedying noncompliance with Texas taxes, including guiding them through the Texas Comptroller's Voluntary Disclosure program. His State Tax Planning practice involves assisting taxpayers in structuring their business and transactions to minimize exposure to franchise tax, and his Commercial Litigation practice involves representing individuals and entities in both state and federal court in a variety of controversies including complex business disputes, securities and health care, among others.

Course Name: Out-of-State Sellers Beware: The U.S. Supreme … · 2019-04-25 · Speakers: David E....

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Transcript of Course Name: Out-of-State Sellers Beware: The U.S. Supreme … · 2019-04-25 · Speakers: David E....