Amicus Brief Argues against Expansion of Quill in Use Tax Case

Thursday, November 5, 2015

The State and Local Legal Center (SLLC) filed an amicus brief with the Ohio Supreme Court urging the court to rule that Ohio’s commercial activity tax (CAT) applies to online vendors that sell in the state. The SLLC argues that Quill Corp. v. North Dakota (1992), which holds that states cannot require retailers with no in-state physical presence to collect use tax, should not be extended to a privilege-of-doing-business tax.

Ohio’s CAT imposes a tax on gross receipts from any entity with sales of more than $150,000 in the state and a “substantial nexus” with the state, including at least $500,000 in taxable gross receipts annually. The CAT is a privilege-of-doing-business tax charged directly to the retailer, not a sales or use tax.

Internet retailers Newegg Inc., Crutchfield Corp., and Mason Companies Inc., which have more than $500,000 in gross receipts annually from sales in Ohio, argue (in three concurrently pending appeals) that Quill prohibits Ohio from making them pay the CAT because they have no physical presence in Ohio and therefor no “substantial nexus,” as the tax requires Mason, Newegg, and Crutchfield argue that Quill’s physical presence requirement should apply to the CAT because it operates similar to a use tax.

The SLLC amicus brief argues that Quill is a bright-line rule that does not apply outside the sales and use tax context, and that he Ohio Supreme Court should not expand the reasoning of Quill to a privilege-of-doing-business tax because Quill has had “clear and deleterious effects on state treasuries and local economies.”

While the SLLC usually only files amicus briefs in Supreme Court cases, it made an exception in this case because limiting the reach of Quill is particularly important to SLLC members.

The Big Seven group of non-partisan, non-profit organizations comprising U.S. state and local government officials joined in with the brief, along with SLLC associate members the GFOA and the International Municipal Lawyers Association.