The state of Maine has waded into uncharted territory with the passage of a law that requires out-of-state sellers to collect Maine sales and use tax on their sales into Maine even if they do not have a physical presence in the state. The law was vetoed by Governor Paul LePage, but both the Maine House of Representatives and the Maine Senate voted yesterday to override the veto.
As enacted, the law requires out-of-state sellers to collect sales and use tax on sales to Maine customers if either:
The seller’s gross revenue from sales into Maine exceeds $100,000 in the previous or current calendar year; or
The seller has conducted at least 200 separate remote sales into Maine in the previous or current calendar year.
The law potentially conflicts with the U.S. Supreme Court decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which prohibits states from imposing a sales tax collection duty on retailers that have no physical presence within their borders. In March 2015, however, U.S. Supreme Court Justice Anthony Kennedy signaled the potential for the Court to overturn, or at least narrow the scope of Quill, when he wrote that the “legal system should find an appropriate case for this Court to re-examine Quill.” Direct Marketing Association v. Brohl, 135 S. Ct. 1124, 1135 (2015).
The Legislature appears to be keenly aware that the constitutionality of this new law will be ultimately decided by the courts. In anticipation of that litigation, the law specifically provides that the state may bring a declaratory judgment action against any party that the state believes is covered by the law. The law also provides that the court must give priority to the action and instructs the court to bar the state from collecting the tax from any party until the underlying action is resolved.
Maine joins a number of other states that are actively seeking to collect sales tax revenue from remote sellers through similar provisions. In May 2016, South Dakota became the first state to pass legislation directly challenging the decision in Quill. The legal challenge to South Dakota’s law is currently pending before the South Dakota Supreme Court, after being ruled unconstitutional by a trial court. Other states have also taken action: Alabama, Massachusetts, and Tennessee have sought to collect sales tax from remote sellers through regulatory changes. And Rhode Island is considering directing remote sellers to collect sales tax as part of its state budget.