Skip to main content

Winding Back Wayfair: Retaining the Physical Presence Rule for State Income Taxation

Posted by on Friday, May 31, 2019 in Notes, Volume 72, Volume 72, Number 4.

Nathan Townsend | 72 Vand. L. Rev. 1391 (2019) |


In 2018, the U.S. Supreme Court decided South Dakota v. Wayfair, Inc., a case abrogating the physical presence rule from Quill Corp. v. North Dakota. The physical presence rule barred a state from forcing a retailer to collect sales taxes on the state’s behalf if the retailer lacked a physical presence within the state. The decision came after a decades-long effort by the states to reach sales-tax revenue effectively pushed beyond their reach by the physical presence rule. While enabling states to reach a new revenue source, the Court failed to take full account of the reliance interests dependent on the physical presence rule. In particular, the Court did not consider the effect its decision would have on businesses that used the physical presence rule as a shield from state income-tax liability. Thus, the Court erred in abrogating the physical presence rule without considering the full picture. This Note argues that Congress should pass legislation reinstating the physical presence rule for income-tax purposes to ensure that the Wayfair decision will not result in an unanticipated disruption in commerce.

Nathan Townsend