Overturning Quill

He didn’t think they’d do it. 

Richard Litwin had been watching the tax issue make its way through the courts since Justice Kennedy offered his concurring opinion in DMA v. Brohl in 2015. There, Kennedy encouraged states to consider laws requiring remote sellers—those who had no physical presence in the state but sold to residents there—to collect the state’s sales and use tax.

Consider it a digital-age corrective to benefit brick-and-mortar businesses—not to mention state governments, which, according to a 2017 GAO report, lost out on between $8 and $13 billion in taxes from internet sales. “You walk into a store, see a product you want to buy, and go buy it on the internet for 30% less—that’s what was happening,” says Litwin, who focuses on state and local tax issues at his eponymous firm in Atlanta. “So I think there was a push to enact this remote-seller legislation to even the playing field.”

South Dakota gave it a go, enacting a law in which, after $100,000 in gross sales or 200 unique transactions, a remote seller was required to start collecting South Dakota sales tax. The state Department of Revenue then filed declaratory judgment actions against three internet companies, including Wayfair. In 2017, the state Supreme Court ruled for the businesses, in part due to the physical presence requirement laid out in Quill Corp. v. North Dakota in 1992. After appeal, in April 2018, Wayfair was argued at the U.S. Supreme Court.

“The justices,” says Litwin, “stated that they did not have sufficient information to make a decision—that changing Quill’s physical presence rule is something better left for Congress to handle, so they can have investigations and live hearings and take testimony from experts.” He felt in his gut that Quill would not be overturned.

He remembers the exact moment he discovered otherwise. “On June 21st, 2018, I was at a wedding in Delray Beach, Florida, and I got an email: South Dakota v. Wayfair, Supreme Court has overturned Quill and upheld [South Dakota] Senate Bill 106 as constitutional.”

That’s when all hell broke loose—taxwise.

“Knowing that Wayfair was going to be heard and decided, several other states had laws in place. So as soon as Wayfair was issued, their laws became effective,” Litwin says. “And it’s not a uniform application.”

While most states followed South Dakota’s 200 transactions/$100,000 gross-sales standard, some dropped the former threshold while others upped the latter amount. “California, New York and Texas, for instance, say you have to have $500,000 in sales,” Litwin says. Some states demand an annual accounting while others want it quarterly. Some states give you a month or two grace period to register, others don’t.

“The states differ with regard to their effective dates, the lexicon they use, the filing frequency,” he says. “It also prompts other questions: Does the company now have to register with the secretary of state in the other state? Is a business subject to local jurisdictions’ sales taxes?”

The decision even upended tax-law nomenclature. For the longest time, substantial nexus meant having a physical presence in another state—such as a salesperson, sales staff, office, property, etc. Now, that term can mean either physical presence nexus (the previous standard) or economic nexus (the post-Wayfair addendum). Either might trigger the requirement to begin collecting sales tax.

Litwin knew that two big-picture changes would result from Wayfair: 1) businesses would need to start paying closer attention to their state-by-state sales, and 2) problems resulting from past inattention might surface.

“It prompted these businesses to reflect on what’s really going on in their business,” he says. “When they come to me, I tell them, ‘Look, not only do you have economic nexus with these other states, but you’ve had salespeople in these other states for many, many years—and you haven’t been collecting sales tax. This is not just an issue that goes back to 2018 for you. This is an issue that goes back to traditional physical presence nexus, and it goes back many, many years.’” 

He adds: “It’s kind of like when you go to a doctor because you feel something in your stomach. Then they take an MRI and say, ‘We also found something in your chest.’ It causes us to pause and look back with heightened scrutiny.”

The result was a cascade of work for him. He estimates that up to 50% of his practice is now devoted to fallout from the Wayfair decision. And it’s not like he wasn’t busy before.

Ask Litwin if he agrees with the Wayfair decision, or if he likes it because it’s such a boon for his business, he pauses and recorrects. Such aspects seem beside the point to him. The politics of Wayfair, too, are potentially fascinating: Four pro-business justices (Thomas, Alito, Gorsuch and Kennedy) voted in favor of taxing businesses, and were joined by Justice Ginsburg; Chief Justice Roberts and three liberal justices dissented. But Litwin would rather not talk the politics of Wayfair. “It’s here,” he says. “All I’m trying to do is embrace it.”

Litwin grew up in a family of doctors but that wasn’t a path for him for the usual reason: “I don’t like blood,” he says.

Family, though, was the initial impetus for pursuing a J.D. “I wanted to do medical malpractice defense work,” he says. “My brother was in medical school and I had a few doctors in my family, and that, to me, was important.” Then in the spring of his second year, he took a tax class with Howard Abrams. “And without sounding hokey or cliché, that professor inspired me. … That’s where I decided I wanted to be a tax lawyer.”

He knows tax law can seem esoteric and complex—not to mention boring—to many people, but right from the start it made sense to him. “I felt like I got it,” he says. “It was logical.” 

After law school, he worked at Arthur Andersen for a year and a half, then ran into a friend at the gym who told him about an opening in the A.G.’s office in the criminal capital felony appeals division. “Completely outside my wheelhouse,” he says, “but I wanted to get into the courtroom.” After that, the tax section grabbed him because of his background. “So by 1990, I was up in the tax section litigating tax cases.” 

In 1995, he jumped to private practice, and he opened Litwin Law in 2003. “It’s a niche practice, a destination practice,” he says. “My clients come to me by referral from folks that don’t focus on state and local taxation.”

Away from the office, Litwin plays tennis every weekend. “And I’m also very active with the University of South Carolina, where I’m on the Board of Visitors,” he says. He also volunteers with Pro Bono Partnership of Atlanta. 

But in another sense there is not much “away from the office” for him. “I think about my clients’ cases day and night,” he says. “It’s hard to leave this job when I go home. But I don’t want to leave the job when I go home. I enjoy what I do.”