There May Yet Be Life In The Quill Due Process Prong

In February 2011, we wrote about a case (Gordon v. Holder), in which the federal Court of Appeals for the District of Columbia Circuit vacated the denial of preliminary injunction against the enforcement of the federal Prevent All Cigarette Trafficking Act (PACT Act), P.L. 111-154 (2010). The PACT Act mandates state sales/use tax compliance by “delivery sellers” of tobacco products, regardless of whether the seller has a physical presence in the state. In vacating the denial of the preliminary injunction, the D.C. Circuit also advised the lower court to address on remand the issue of whether the PACT Act’s imposition of “potentially disparate burdens on ecommerce” violates the Due Process Clause of the United States Constitution (even though Congress has the authority to impose such burdens under the Commerce Clause). It appears that the Gordon case remains on remand before the district court as of this writing.

The Second Circuit Court of Appeals has now also ruled that a federal law must satisfy a minimum standard under the Due Process Clause before it may purport to authorize the imposition of state use tax collection by remote sellers. Red Earth LLC v. Holder, __ F.3d __, 2011 WL 4359919 (September 20, 2011). In Red Earth, the Second Circuit upheld the granting of a preliminary injunction against the PACT Act’s state tax collection provisions as they apply to certain Native American “delivery sellers” of tobacco products, on the grounds that the Act may be in violation of basic Due Process standards. Although, as the Court noted, the Due Process Clause does not require that a retailer have a “physical presence” in a state before a use tax obligation may be imposed, the Court found that the district court did not err in ruling that PACT Act likely violates the Due Process Clause because it “requires a seller to collect based on its making of [only] one delivery” in the state.

California Governor Signs (Possibly Temporary) Affiliate Nexus Law Repeal

As we wrote recently, on September 9, the California legislature passed AB 155, which repeals (for at least the next year) the affiliate nexus provisions of the affiliate nexus law (ABX 1-28) enacted in June. The repeal may be only temporary, because the new law provides that if federal legislation overturning Quill Corp. v. North Dakota is not adopted by July 31, 2012, or if such legislation is adopted, but California does not implement the federal law’s requirements by September 14, 2012, then the affiliate nexus provisions of the repealed law, with some modifications described in our prior post, will kick back in on January 1, 2013, under the terms of AB 155.

Although Governor Brown reportedly had some misgivings regarding AB 155, he signed the bill into law earlier today. The law is effective immediately, so for now, California no longer has an affiliate nexus law. Whether federal legislation will be enacted and whether California will implement any such law’s requirements remains to be seen…

British Columbia Repeals HST in Voter Referendum

As we have written previously, in 2010, both Ontario and British Columbia entered into agreements with Canada to harmonize the Goods and Services Tax (“GST”) and their Provincial Sales Taxes (“PST”) into a single Harmonized Sales Tax, or “HST.” The HST went into effect July 1, 2010, in both provinces.

But, the HST proved unpopular in British Columbia, and on August 26, a majority of voters in British Columbia passed a referendum aimed at extinguishing the HST and reinstating the PST. The transition back to the PST is expected to take “a minimum of 18 months." The reason for the long transition is that the province must develop and pass legislation and regulations to re-implement the PST and put in place systems to administer it, and the federal government and the province must pass transitional rules to return the province to the GST. Additionally, British Columbia must determine how it will refund to the federal government the $1.6 million provided to the province to aid in its initial transition to the HST.

California Affiliate Nexus Law Repealed (At Least Temporarily) In Deal With Amazon

As we have previously reported, on June 28, California enacted an affiliate nexus law (ABX 1-28). Under the California law, an out-of-state retailer that has contracts with California affiliates to publish online advertisements linking consumers to the retailer’s website would have been required to collect California sales tax (or use tax) on all of its sales to California purchasers, if: (1) the in-state publishers also engaged in solicitation of customers in the state on behalf of the retailer through other means (such as by flyers, telephone calls, or e-mails) targeting California consumers; (2) the publishers of the advertisements were compensated based on sales made by the retailer; (3) over a 12 month period, the retailer realized at least $10,000 in cumulative sales to consumers accessing its site through such online ads; and (4) the retailer had California sales of at least $500,000 during such 12 month period.

Amazon.com responded to ABX 1-28 by supporting a campaign to repeal the new affiliate nexus law by citizens’ referendum, which was reportedly well on the way to gathering the necessary signatures to get the repeal measure on the ballot next year.