Hawai‘i Urges Supreme Court to Reconsider Outdated ‘Physical Presence’ Rule

Hawaiʻi joined 34 other states and the District of Columbia in urging the U.S. Supreme Court to reconsider the court’s outdated “physical presence” rule, which restricts states’ ability to collect certain taxes from out-of-state retailers announced Attorney General Doug Chin.

The brief, led by Colorado Attorney General Cynthia Coffman, supports the State of South Dakota in South Dakota v. Wayfair Inc.

“As more and more people shop online—including just by using their phones—states are losing tax revenues to which they are entitled,” Attorney General Chin said. “There is no longer a justifiable legal reason to tax brick-and-mortar stores differently from online retailers. This is why Hawaiʻi has taken the position that ‘physical presence’ alone should not determine whether a retailer can be taxed in Hawaiʻi. The position we are asking the Supreme Court to take will clarify this nationwide.”

In 1967, the U.S. Supreme Court ruled in National Bellas Hess v. Department of Revenue that states were prohibited from requiring out-of-state retailers to collect sales and use taxes on goods purchased through the mail.

South Dakota recently passed a law requiring online retailers to collect South Dakota sales taxes.

On Sept. 14, 2017, the South Dakota Supreme Court held South Dakota’s statute unconstitutional because only the U.S. Supreme Court can reconsider its own rulings. South Dakota asked the U.S. Supreme Court to revisit the matter.

Hawaiʻi supports South Dakota’s effort to overturn the physical presence rule set forth in Bellas Hess and later reaffirmed in the U.S. Supreme Court’s 1992 ruling in Quill Corp. v. North Dakota.

Colorado and Hawaiʻi were joined in the brief by Alabama, Arkansas, California, Connecticut, Florida, Illinois, Idaho, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Vermont, Utah, Washington, Wisconsin, Wyoming and the District of Columbia.

A copy of the amicus brief can be downloaded here.