Overview
CBO Releases 2018 Long Term Budget Outlook: Today, the Congressional Budget Office (CBO) issued its 2018 long term budget outlook. The CBO projects that the federal budget deficit will grow substantially relative to the size of the economy over the next several years, before stabilizing for a few years and the growing again over the rest of the 30-year period, resulting in federal debt held by the public to approach 100% of GDP by 2030 and 152% by 2048. The report also expects net interest costs to climb sharply as interest rates rise and noninterest spending to grow to 23% of GDP by 2048. Revenue, however, is projected to stay roughly flat until 2026.
IRS Issues Reminder of Upcoming Filing Deadline for Hurricane Victims: Today, the IRS reminded residents of Puerto Rico, the US Virgin Islands, and American Samoa affected by 2017’s hurricanes and tropical storms of the June 29 extended filing deadlines for their 2017 federal income tax returns. Payment of tax is required, but no interest, late-filing penalties, or late-payment penalties are due.
Tax Court Finds IRS Abused Its Discretion in ESOP Qualification Case: In Val Lanes Recreation Center Corp. v. C.I.R., T.C. Memo. 2018-92 (June 26, 2018), the Tax Court held that the IRS abused its discretion when it retroactively revoked its earlier determination that the taxpayer’s employee stock ownership plan (ESOP) was qualified under Section 401(a) and that the ESOP’s related trust was exempt from taxation under section 501(a).
DTU In Depth
The Wayfair Case: Physical Presence Out and Economic Nexus In. What’s Now in Store for Internet Retailers?: On June 21, 2018, a divided US Supreme Court issued its opinion in South Dakota v. Wayfair, Inc., 585 U.S. ____ (2018) (Wayfair), upholding a South Dakota law imposing sales tax collection obligations on retailers with an economic presence in the state. The opinion overturns the decades-old rule enunciated in Quill Corp. v. North Dakota (Quill) and National Bellas Hess, Inc. v. Dep’t of Revenue of Ill. (National Bellas Hess), which required an in-state physical presence before a state could impose such obligations. The case fundamentally alters the tax landscape for retailers making sales in multiple jurisdictions.
History of the Physical Presence Rule
The physical presence rule dates back more than five decades, to the Court’s opinion in National Bellas Hess. That case involved Illinois’ attempt to impose a use tax collection obligation on a mail-order retailer who had no physical presence in Illinois and shipped orders to Illinois customers via common carrier. The Court held that the Commerce Clause prohibited states from imposing collection obligations on an out-of-state seller that lacked any physical presence in the state. The Court later reiterated this rule in Quill, a case featuring nearly identical facts. The Court expressly declined to overrule the bright-line test established in National Bellas Hess, stating that “the continuing value of a black line rule in this area and the doctrine and principles of stare decisis indicate that the National Bellas Hess rule remains good law.” Thus, the rule remained: in order for a state to impose sales or use tax collection obligations on a seller, the seller must have some physical presence in that state.
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