Vermont Enacts “Economic Nexus” Standards And Customer Notification Provisions, Set To Take Effect After Further Legal Developments In Other States

Not to be out done by other states that have enacted laws intended to challenge or circumvent the Supreme Court’s decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), Vermont has enacted a new statute that adopts both South Dakota-type sales tax “economic nexus” thresholds and Colorado-type customer notification provisions. However, the new provisions do not immediately take effect, but are deferred in anticipation of future legal developments in pending litigation. Governor Peter Shumlin signed the bill on May 25, 2016. See HB 873, Sec. 25–27. [ To read the bill, click here. ]

“Economic Nexus” Thresholds

The Vermont law copies the “economic nexus” thresholds recently adopted in South Dakota. [ To read the blog post, click here. ] The law requires sales tax collection by retailers “not maintaining a place of business or other physical presence in this State,” who sell tangible personal property via remote means (i.e., catalogs, Internet, in-state advertising, etc.) and have made sales in the state during any preceding 12-month period: (a) of at least $100,000; or (b) in at least 200 individual sales transactions. See. HB 873 Sec. 24. These provisions are directly at odds with the Supreme Court’s holding in Quill requiring that a retailer have a physical presence in a state before the state may impose sales tax collection and reporting obligations upon the retailer. See Quill, 504 U.S. at 313-19. The South Dakota law is currently being challenged as unconstitutional in two different pending suits in which Brann & Isaacson acts as counsel to the challengers.

Typical of its cautious approach to controversial new nexus measures, the Vermont legislature made the new “economic nexus” thresholds contingent upon future legal developments. HB 873 provides that the new thresholds “shall take effect on the later of July 1, 2017 or beginning on the first day of the first quarter after a controlling court decision or federal legislation abrogates the physical presence requirement of Quill v. North Dakota, 504 U.S. 298 (1992).” In other words, the new standard will not take effect until the Quill physical presence standard is abrogated.

Customer Notice Provisions

The law also contains new customer notification requirements for Internet retailers and other remote sellers that very closely track provisions of the Colorado notice and reporting law challenged by the Direct Marketing Association in DMA v. Brohl, 814 F.3d 1129 (2016) (in which Brann & Isaacson serves as counsel to the DMA). The Vermont bill adopts both what have come to be called the “Transactional Notice” and the “Annual Statement” provisions, under which retailers are required to alert their customers of the customers’ obligation to report state use tax on their purchases from the retailer. See HB 873, Sec. 25–26. Unlike the Colorado law, however, the new Vermont statute does not require an annual “tattle-tale” report to the state revenue department listing all of the retailer’s in-state customers and their purchase amounts.

The new Vermont Transactional Notice provisions will require compliance by retailers at all times after the law becomes effective, while the Annual Statements must be provided on or before January 31 of each year after the effective date. The law includes penalties of $5 per failure to give a Transactional Notice, and $10 per failure to provide an Annual Statement to a customer purchasing more than $500 from the retailer.

The effective date for the new customer notice provisions is, however, deferred until “the earlier of July 1, 2017, or beginning on the first day of the first quarter after the sales and use tax reporting requirements challenged in Direct Marketing Assoc. v. Brohl, 814 F.3d 1129 (10th Cir. 2016) are implemented by the State of Colorado.” At present, the requirements of the Colorado law are not being implemented by the Colorado Department of Revenue. Regardless of whether Colorado undertakes enforcement of its law, the Vermont requirements will take effect not later than July 1, 2017.

We will keep you abreast of further developments.