Remote Sellers in Maine Beware: You May Be Subject to Collect Sales and Use Tax
Maine has just joined several other states in their quest to try and collect sales and use tax on remote sellers. Effective October 1, 2017, Maine requires remote sellers (sellers with no apparent physical presence in the state; i.e., no employees, office, warehouse, etc.) to collect and remit Maine sales and use tax on sales into the state if either: (1) the seller's gross revenue from the sales in the previous calendar year or current calendar year exceeds $100,000, or (2) the seller made at least 200 separate transactions in the previous calendar year or the current calendar year. As discussed below, this new legislation raises potential constitutional challenges by imposing a sales and use tax on remote sellers who have no physical connection with Maine but simply sell in volume to Maine customers.
The U.S. Supreme Court in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), established precedent that a state is prohibited from imposing a sales tax collection obligation on a seller that has no physical presence within the state. South Dakota sought to challenge Quill when in 2016 it enacted legislation imposing a sales tax requirement on a remote retailer that either exceeded a threshold amount of revenue from sales into South Dakota or entered into a minimum number of sales transactions within the state (a similar statute to Maine). South Dakota's legislation was recently challenged and ruled unconstitutional by the South Dakota Supreme Court in State of South Dakota v. Wayfair Inc., Overstock.com Inc. & Newegg, Inc., 2017 S.D. 56 (2017). The South Dakota Supreme Court based its decision on the fact that Quill has not yet been overruled. This decision in South Dakota, however, leaves the door open for the state to seek an opinion from the U.S. Supreme Court to overturn Quill.
The U.S. Supreme Court may be interested in hearing such a case. In 2015, Supreme Court Justice Kennedy stated that changes in technology and consumer sophistication warrant a reversal of Quill, since a "business may be present in a State in a meaningful way, without that presence being physical in the traditional sense of the term." Direct Marketing Association v. Brohl, 135 S. Ct. 1124, 1135 (2015). Nevertheless, until a U.S. Supreme Court decision is made to overturn Quill, states similar to Maine, will likely continue to challenge and push legislation that requires remote sellers to collect and remit sales tax when it sells within its borders.
Maine is mindful of potential challenges to its legislation. In its statute, Maine is authorized to bring a declaratory judgment action against any remote seller meeting the requirements for the sales and use tax obligation discussed above. The statute further provides that if an action is brought, or if there is another suit contesting the statute, then Maine will be enjoined from enforcing the sales and use tax against any person who does not affirmatively consent or otherwise collect the sales or use tax voluntarily.
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