Supreme Court hears arguments on internet sales tax

Supreme Court hears arguments on internet sales tax

[JURIST] The US Supreme Court [official website] heard oral arguments in two cases Tuesday: South Dakota v. Wayfair and Lamar, Archer & Cofrin, LLP v. Appling [transcripts, PDF].

In Wayfair, the justices considered whether to overrule Quill Corp. v. North Dakota [opinion], a previous Supreme Court decision in which the court held that the commerce clause prohibits states from collecting taxes from an out-of-state retailer that has no physical presence within the state. This ruling has thus far protected online retailers from paying taxes in states in which they do not maintain a physical presence. In his opening, counsel for the petitioner, the state of South Dakota, stated:

There are two very significant consequences brought about by Quill: First, our states are losing massive sales tax revenues that we need for education, healthcare, and infrastructure. Second, our small businesses on Main Street are being harmed because of the unlevel playing field created by Quill, where out-of-state remote sellers are given a price advantage.

Counsel for the respondents, three online retailers, responded by that if Congress saw an issue with the Quill tax scheme in the internet era, it would have acted accordingly.

The Lamar, Archer & Cofrin, LLP [official website] dispute arose between the Atlanta law firm and one of its former clients, R. Scott Appling. In 2004, Appling retained the firm for an independent legal dispute. One year later, the firm sent Appling a bill for $60,000, which he refused to pay. However, the firm stated that Appling led them to believe that he would be receiving a tax return totaling $100,000 and, after receiving the amount, would pay them back. After another year of work by the firm, it learned that Appling had no intention of paying them for their work and they filed suit. Judgment was entered against Appling for a total of $104,000. Three months later, Appling declared bankruptcy and filed suit against the firm claiming that the total he owed them was obtained by fraud.

At issue in the case is 11 USC § 523(a)(2), which states: “A discharge; does not discharge an individual debtor from any debt; for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by; (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider, financial condition. Section B of the statute further adds that: use of a statement in writing; (i) that is materially false; (ii) respecting the debtor’s;s or an insider’s financial condition; (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or published with intent to deceive; Specifically, the term “or” in 11 USC § 523(a)(2)(b)(iii) lies at the heart of the issue.

Appling argued that his debt did not fall under the exception as it was a statement respecting his financial condition as provided by the statute. The firm responded by arguing that a statement regarding a single asset should not be interpreted as a statement respecting the debtor’s financial condition. In essence, the firm is arguing that a statement respecting a debtor’s financial condition must be much further in scope and concern much more than just a single asset.