On Wednesday, September 15 the House Ways and Means Committee approved and advanced the Democrat’s $3.5 trillion social spending package, which would significantly increase taxes on high-income individuals and corporations if it is passed into law. We are monitoring the status of this legislation and will have a more in-depth analysis as it makes its way through Congress. For now, here is an overview of some of the major provisions addressed:

Corporate Income Tax Rate: the spending package would increase the top corporate tax rate to 26.5 percent for income above $5 million. The 21 percent tax rate would remain for income between $400,000 and $5 million, and the rate would decrease to 18 percent for income below $400,000. The graduated tax rate benefit would phase out for corporations making more than $10 million, and personal services corporations would not be eligible to use the graduated rates.

Qualified Small Business Stock Limitation: the 75 percent and 100 percent exclusions for gains realized from the sale of qualified small business stock would not apply for taxpayers with an adjusted gross income of $400,000 or more. The 50 percent exclusion would still be available.

Temporary S Corporation Reorganization: S corporations that were established prior to May 13, 1996 (when the “check the box” entity classification rules were published) would be allowed to liquidate completely and transfer substantially, all of their assets and liabilities to a domestic partnership without triggering a tax. The temporary period for reorganizations would be a two-year period beginning on December 31, 2021.

Individual Income Tax Rate: the top individual income tax rate would return in 2022 to 39.6 percent for income over $450,000 for married joint filers and $400,000 for single filers.

Capital Gains Tax Rate: the top tax rate for long-term capital gains and qualified dividends would increase to 25 percent for individuals, effective September 13, 2021 (the date of introduction). Gains recognized after this date, to the extent they do not relate to transactions entered into prior to this date, would be subject to a 25 percent tax rate if they would have previously been subject to a 20 percent tax rate. After December 31, 2021, the 25 percent tax rate would continue to apply for individuals in the 39.6 percent tax rate.

Carried Interest Holding Period Changes: fund managers subject to the carried interest rules would be subject to a five-year holding period to qualify for long-term capital gains tax rates, effective in 2022. The holding period was previously increased to three years.

New Surtax: the package contains a new 3 percent surtax on individuals with a modified adjusted gross income of $5 million, or $2.5 million for married individuals filing separately. Trusts and estates with income of $100,000 or more would also be subject to the surtax.

Qualified Business Income Deduction: would set a maximum allowable deduction of $400,000 for individuals and $500,0000 for married couples for the 20% Section 199A qualified business income deduction. This 20% deduction effectively would increase the top tax rate on business income from 29.6% to 39.6% on the excess amount over the cap.

Net Investment Income Tax: trade or business income that is not subject to FICA taxes, which is generally income from pass-through entities, would be subject to the 3.8 percent tax on net investment income even if the owner materially participates in the business.

Estate and Gift Tax Exemption: the unified estate and gift tax exemption would be cut in half, to approximately $6 million, for 2022. This accelerates the decrease which was expected to occur in 2026.

Grantor Trust Changes: irrevocable grantor trusts are a common estate planning tool, allowing individuals to transfer assets out of their estate while remaining responsible for the income taxes assessed on the income earned by the trust. The legislation would not only cause the assets of the trust to be included in the grantor’s estate, and treat distributions from grantor trusts as taxable gifts, but would also impose an income tax on any sales made by the grantor to the trust. Transactions between the grantor and a grantor trust have generally been ignored for income tax purposes. These provisions would apply to grantor trusts, other than revocable grantor trusts, created on or after the date the legislation is ultimately enacted. These potential changes would significantly impact estate planning with many common types of trusts, including Grantor Retained Annuity Trusts (GRATs), Irrevocable Life Insurance Trusts (ILITs), and Spousal Lifetime Access Trusts (SLATs).

Retirement Plan Contributions and Distributions: the spending package would prohibit additional contributions to individual retirement accounts (IRAs) if the total value of an individual’s IRAs and defined contribution retirement accounts generally exceed $10 million as of the end of the prior taxable year. This limit would be applied to single filers with taxable income over $400,000, and joint filers with taxable income over $450,000. An additional minimum distribution would also apply where an individual’s combined traditional IRA, Roth IRA, and defined contribution retirement account balances exceed $10 million at the end of a taxable year. The additional minimum distribution would generally be 50 percent of the amount that the balance exceeds the $10 million limit. If the balance exceeds $20 million, the individual would generally need to distribute the excess over $20 million prior to applying the 50 percent distribution requirement.

Roth Conversions: since 2010, individuals have been able to convert retirement accounts to Roth IRAs irrespective of the income limitations currently in place for ordinary contributions to Roth IRAs. This package would eliminate conversions for single filers with taxable income over $400,000 and joint filers with taxable income over $450,000.

Notably, the spending package does not include any provisions eliminating the step-up in basis that occurs to an individual’s assets when they die, as was previously proposed by President Biden. The spending package also omits changes to the $10,000 cap on the state and local tax deduction, though it is expected that this will be added later. The House is expected to take action on the package when it returns from recess next week, with hopes to pass the legislation before the end of the month. We also expect that there will be changes made to the legislation prior to passage.

We strongly encourage you to reach out to your HBK Tax Advisor to discuss how these tax changes may impact your tax situation. In addition, if you are considering establishing a trust, or have previously established a grantor trust, we urge you to contact us so that we may determine whether any immediate planning is necessary in order to mitigate the potential tax consequences of the grantor trust changes.

On March 10th Congress passed the $1.9 trillion coronavirus relief known as The American Rescue Plan Act of 2021 (“the Act”), by a 220-211 vote after the passage of the Act on March 6th by the Senate. The Act was swiftly signed by the President, providing long-discussed relief provisions, with many tax law changes included. Details of some key provisions within the Act are discussed below.

Individual Provisions

Individual Recovery Rebate/Credit

The Act includes a third round of stimulus payments that will total $1,400 per eligible individual taxpayer. In order to qualify for the full amount, a single filer must have an Adjusted Gross Income (“AGI”) of $75,000 or lower, with the threshold increasing to $112,500 for heads of household, and $150,000 for couples married filing jointly. The payments will phase out completely when the AGI reaches $80,000 for single filers, $120,000 for heads of households, and $160,000 for couples married filing jointly. Payments will follow the same methodology as the prior two rounds of stimulus checks, with payments deposited directly into a taxpayers’ bank accounts if the Internal Revenue Service (“IRS”) has their direct deposit information on file, or mailed to the address the IRS has on file.

College students and other eligible dependents are eligible for this third stimulus, with payments paid directly to the parents.

The stimulus payment eligibility factors will be based on the most recent year’s tax information on record, meaning if your 2020 returns have already been filed the IRS will base eligibility on 2020, if you have not filed eligibility will be based on your 2019 information.

As was the case with the previous stimulus payments, if an eligible taxpayer is entitled to an amount larger than he or she receives, a credit for the excess will be available on the taxpayer’s 2021 individual income tax return, due on April 15, 2022. Amounts received that are higher than the allowable credit calculated on the 2021 individual income tax return will not have to be repaid.

Unemployment Benefits

Also included in the Act is an extension of the additional $300 per week in unemployment benefits, through September 6, 2021, and an exclusion from tax of up to $10,200 in unemployment compensation received during the 2020 tax year. This exclusion is limited to individuals with an AGI of less than $150,000. Taxpayers who qualify for this exclusion but have already filed their individual income tax returns may amend their returns in order to claim the exclusion and receive a refund of any taxes already paid.

Earned Income Tax Credit

The Act modifies the earned income tax credit (EITC), and increases the amount of the credit for the 2021 tax year. For filers without children, the credit is increased from $543 to $1,502, and the income limit at which the full credit can be claimed is increased to $9,820. The threshold for the phaseout of the credit for non-joint filers is also increased to $11,610, up from $8,880. The minimum age for filers without children claiming the EITC is reduced to 19 from 25 (except in the case of full-time students).

Taxpayers will be allowed to use their 2019 earned income amount instead of their 2021 earned income earned income amount if it is greater than 2021.

Other changes made that are permanent include eliminating the disallowance of the EITC due to lack of identification requirements; increasing disqualifying investment income to $10,000, adjusted for inflation after 2021; and adjusting the definition of “married” so that separated individuals who meet certain requirements can avoid filing jointly with an ex-spouse in order to claim the EITC.

Child and Dependent Tax Credits and Other Benefits

Another key provision in the Act is the modification of the Child and Dependent Care tax credit for qualifying taxpayers who have children under the age of 13 or other qualifying dependents. The Act modifies this credit so that it is fully refundable for tax years beginning in 2021, which could provide qualifying families with an additional tax refund. The maximum credit is up to $4,000 per qualifying individual, or $8,000 for two or more for tax years beginning in 2021. Taxpayers calculate the credit by taking up to 50% of the value of eligible expenses, subject to a phaseout to the extent the taxpayer’s AGI exceeds $125,000.

The Act also increases the Child Tax Credit for 2021 to $3,000 (up from $2,000) per eligible child and raises the age limit of qualifying children to 17. Married couples who have modified AGI up to $150,000, heads of the household up to $112,500, and single filers up to $75,000, would receive the full value of the credit. The credit then phases out as income increases. The Act makes this credit fully refundable.

In addition to these changes, the Act allows for an increase in the amount that can be set aside in a dependent care flexible spending account. The amount is increased from $5,000 to $10,500 for the 2021 year only. Note that employers have the discretion to allow this change, and therefore withholdings cannot be modified without employer consent. More guidance on this is expected in the near future.

Student Loan Forgiveness

The Act does not forgive any student loan debt, but it does pave the way for potential future forgiveness. The Act modifies the Internal Revenue Code to specify that any student loan forgiveness between December 31, 2020 and January 1, 2026 will not be taxable and amounts forgiven will not be included in the computation of a taxpayer’s AGI.

Business Provisions

Employee Retention Credit

The Act codifies the Employee Retention Credit (“ERC”) and extends the ERC through December 31, 2021. The ERC was originally enacted under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed in March of 2020, and extended through the Consolidated Appropriations Act (“CAA”) passed in December of 2020. Eligible employers are entitled to a credit in an amount equal to 70% of the first $10,000 wages per employee for each qualifying quarter in 2021. This means that an employer could potentially have up to $40,000 in qualifying wages, per employee, during tax year 2021.

Families First Coronavirus Response Act (“FFCRA”)

The FFCRA was established to establish mandatory obligations for employers to provide emergency paid sick and family leave. The FFCRA expired on December 31, 2020 but was temporarily extended through the CAA permitting employers to implement policies that would provide paid leave as a qualifying requirement of eligibility for a credit against payroll tax. This modification was set to be available until March 31, 2021. The current Act extends the tax credits for sick and family leave to September 30, 2021. The Act also adds additional reasons that employees qualify for paid sick leave and family leave including vaccine appointments and complications that may arise due to receiving the vaccine. Additionally, the Act resets the 80-hour per employee limit after March 31, 2020, and increases the limit on the credit for paid family leave to $12,000. Federal workers are now eligible for up to 15 weeks of paid leave for COVID-19-related absences for themselves and their families under the Act. Self-employed individuals are also permitted an increase from 50 days to 60 days of qualifying family leave absences.

Paycheck Protection Program

The Act further modifies the Paycheck Protection Program to include additional eligible organizations. Specifically, the following types of businesses are now eligible for PPP loans:

• Certain 501(c) organizations with up to 500 employees per location.
• Certain nonprofit organizations with no more than 300 employees and either less than 15% of receipts or activities resulting from lobbying or whose cost of lobbying activities did not exceed $1 million in the tax year before February 15, 2020.
• Certain internet publishing organizations with a NAICS code of 519130, who have not more than 500 employees, and who will use the loans to support expenses related to supporting local or regional news.

The Act also adds $7.25 billion of funding for the PPP program but does not extend the period in which loans can be approved, which currently ends March 31, 2021.

Restaurant Revitalization Grants

Certain businesses, including restaurants, food stands, food trucks, food carts, caterers, saloons, inns, taverns, bars, lounges, brewpubs, tasting rooms, taprooms, licensed alcohol production facilities where visitors may taste, sample, or purchase products, or other similar businesses may now be eligible for a Restaurant Revitalization Grant. These businesses must have no more than 20 locations and cannot apply for a Shuttered Venue Operator Grant.

Grants, up to $10 million per business and up to $5 million per physical location will be calculated based on the difference in gross receipts between 2019 and 2020. Any relief received under the Paycheck Protection Program will be used in the gross receipts calculation, thus reducing the amount of the grant. Grant funds can be used for payroll costs (except those payroll costs used to obtain an Employee Retention Credit), mortgage payments, rent, utilities, and certain maintenance, supplies, food and beverage, supplier, or other operational expenses. Applicants must certify that economic uncertainty makes the grant request necessary to support the ongoing operations of the eligible entity.

Shuttered Venue Operator Grants

While the Shuttered Venue Operator Grant program, introduced in the Economic Aid Act portion of the Consolidated Appropriations Act, 2021, has not opened for applications, guidance continues to evolve. Earlier this month, additional frequently asked questions and guidance, were released by SBA.

Now, the American Rescue Plan Act of 2021 expands the Shuttered Venue Operator Grant program to eligible businesses who apply for or receive a Paycheck Protection Program loan. The amount of the Shuttered Venue Operator Grant will be reduced by the amount of the Paycheck Protection Program loan.

These are just some of the provisions included in the American Rescue Plan Act of 2021. HBK will continue to bring you in-depth analysis as additional information becomes available. If you have any questions please contact your HBK Advisor.

You’re not alone if you’re confused about the rules for getting your Small Business Administration Paycheck Protection Program loan forgiven. Rules and guidelines for completing the Forgiveness Application were released Friday, May 15, but discussions regarding changes or updates to those rules are ongoing in the U.S. Congress. There appears to be bipartisan support for extending the “covered period” for calculating loan forgiveness beyond the current eight weeks to at least 10 and perhaps longer, and for greater flexibility in terms of how the loan proceeds can be spent to qualify for forgiveness.

HBK is staying on top of the talks and we will keep you informed about changes as they are released. In the meantime, we are advising our clients to follow the current rules and guidelines as published in the May 15 SBA Forgiveness Application release.

For a thorough review of the requirements and procedures for completing the Application as of May 15, link to the recording of our May 18 webinar on the subject at: http://hbkcpa.com/ppp-loan-forgiveness/

Congress is great at titling laws with acronyms. The SECURE Act is yet another one of that category of bills with cutesy names with greater emphasis on creating a word than making sense, in this case, “Setting Every Community Up for Retirement Enhancement Act of 2019,” which, contrary to its title, has nothing to do with communities per se. This bill has passed the House with overwhelming bipartisan support and is paired with a similar bill in the Senate. The Senate effort to pass this legislation is currently stalled.

We expect many of the following proposals to become law:

• Eliminate the age 70-1/2 cutoff at which workers are no longer allowed to contribute to IRAs;

• Increase the age at which required minimum distributions must be made from an IRA or employer sponsored qualified retirement plans, like 401(k) plans, from age 70-1/2 to age 72;

• Limit the period of time that distributions from inherited IRAs and inherited employer sponsored qualified retirement plans would be required to be paid out to 10 years rather than the life expectancy of their beneficiaries. Exceptions to this limit are likely to include spousal rollovers and inherited retirement accounts where the beneficiary is a minor or disabled;

• Permit employers to automatically escalate their employees’ contributions up to 15% of pay, which is an increase from the prior limitation of 10%;

• Increase the tax credits provided to small businesses who start up retirement savings plans and/or include automatic enrollment from $500 to $5,000;

• Allow graduate students and postdoctoral to save for retirement based on their stipends/fellowships, and allow home healthcare workers to save based on “difficulty of care” payments, which are otherwise not counted as compensation;

• Create a safe harbor that employers can use when they are choosing group annuity issuers to support 401(k) plan lifetime income stream options;

• Require plan sponsors to tell the participants about how much monthly retirement income their assets might produce; and

• Expand Section 529 education savings accounts to include such categories as apprenticeships and homeschooling expenses.

The proposed changes to the required distribution period from IRAs and other employer sponsored qualified retirement plans will significantly accelerate distributions. Let’s look at this example:

An individual age 25 inherits a $1,000,000 IRA. The required distributions under current law would be paid out over the life expectancy of the 25-year old, which would be 58.2 years. The SECURE Act would require the beneficiary to withdraw everything from the inherited IRA over 10 years. Under current law, the initial required distribution for the 25-year-old beneficiary would be $17,182 ($1,000,000 divided by 58.2). In the second year, the minimum amount required to be distributed would be the balance at the beginning of the second year divided by 57.2. In each successive year the divisor would be reduced by 1. Ultimately, the full amount would be distributed within the 58.2-year period. If the required minimum amount is not distributed, the beneficiary would be subject to a 50% penalty on the amount not distributed.

The SECURE Act would not require a distribution in the first year. The total amount in the IRA would be required to be fully distributed within the 10-year period in any manner the IRA beneficiary decides. The entire IRA could be distributed on the last day of the 10-year period. The SECURE Act will require a beneficiary to plan distributions over the 10-year period more carefully.

We will address planning issues associated with these proposed changes to the required minimum distribution rules in future articles.

As taxpayers have struggled to understand the effect that the Tax Cuts & Jobs Act of 2017 (TCJA) will have on their 2018 taxes, Congress and the Treasury Department have been busy working behind the scenes to draft the framework for a new tax cut package and proposed regulations that will hopefully provide some clarity to an increasingly complex tax system.

On July 24th, the House Ways and Means Committee Chairman, Kevin Brady (R-Texas) released the framework of a new tax cut package – labeled Tax Reform 2.0 – that gives some insight into additional tax law changes that may be coming in the near future. The following is addressed in the framework:

In order to pass tax legislation at the end of 2017, the Republican-lead House and Senate had to rely on a special legislative process known as budget reconciliation. Legislation passed through this process is not subject to filibuster (meaning that the minority party cannot block the legislation), and it only requires a simple majority vote to pass. The trade-off to using this process is that any legislation passed under budget reconciliation cannot increase the deficit after 10 years. This means that most of the provisions of the TCJA are set to expire after 2025.

The Republicans used budget reconciliation to pass tax reform quickly, and now they are on a continuous campaign to try to make the changes permanent. The framework argues that permanency will provide “certainty for our families, workers, and Main Street small businesses while unleashing even more economic growth in America for the long run.” This seems rather unlikely since the Democrats, in general, do not appear to support making the cuts permanent.

Problems with the social security system have lead to an increased focus on other methods of promoting savings across the country. The framework focuses on the following savings accounts:

1. Retirement savings – the framework indicates that Tax Reform 2.0 will help small businesses provide retirement plans for their workers, and will help employees participate in those plans. In addition, the framework indicates that changes will be made to allow families to use their retirement accounts to pay for the costs of welcoming a new child – whether by birth or adoption – into the family.

2. Universal Savings Account (USA) – the framework introduces a new savings account that it claims will be a “fully flexible savings tool for families.”

3. 529 Education Accounts – the framework indicates that these types of accounts will be expanded to pay for apprenticeship fees to learn a trade, homeschooling costs, and to help pay off student debt.

With the United States no longer in Bloomberg’s list of top 10 most innovative countries in the world, Congress is looking for ways to increase innovation across the country. The framework indicates that Tax Reform 2.0 will introduce expanded benefits to help new businesses write off more of their initial start-up costs, and to remove barriers that may inhibit growth.

Brady hopes to move forward with a committee vote on draft legislation this coming September, though the actual legislation may change significantly as members of Congress continue to lobby for their own ideas. The November midterm elections may also have an impact on the final legislation that is put up for a vote.

As Congress continues to focus on new legislation, the Treasury Department has been focused on providing guidance for various provisions of the TCJA. One area of the new tax law that needs clarification is the new 20% pass-through deduction. Proposed Regulations were originally slated to be released in June, but that date has been pushed back.

On July 25th, a draft of the proposed regulations were delivered to the Office of Management and Budget’s Office of Information and Regulatory Affairs. Since the regulations are listed as “economically significant,” they qualify for an expedited 10-day review. Hopefully this means that we will see the proposed regulations soon.

At HBK, we strive to keep you informed of major developments and changes to the tax code. These changes may have a significant impact on current business operations and year-end planning. We encourage you to reach out to your CPA to see what impact these developments may have on your tax situation.

A look at the Supreme Court case that could mean major taxation changes for many business owners.

History of the Case

In 1992, the Supreme Court made a decision that has, so far, stood the test of time and shaped how states impose sales tax on businesses. Quill v. North Dakota involved Quill Corp., a company distributing ads, catalogs, flyers, and floppy disks into North Dakota, and North Dakota’s attempt to impose sales tax on Quill Corp. for their “regular or systematic solicitation” of consumers within the state. The Supreme Court’s decision in Quill cemented what we now know as the “physical presence test,” which requires a physical presence, or a tangible connection, between a state and a business in order for that state to impose taxing obligations. For more than twenty years, states have modeled their taxing systems around the limitations imposed under Quill, and anyone engaged in e-commerce knows that understanding where their physical presence or “nexus” lies is critical in determining their tax collection and filing requirements within a state.

Since Quill, many states have attempted to broaden their taxing authority while still meeting the requirements set forth under Quill’s physical presence test. Quill was decided before the boom of e-commerce and large internet retailers, in a time when mail order catalogs were often used for interstate sales. An e-commerce business without physical presence in a state cannot be required to charge sales tax on purchases within it since they lack sufficient nexus. Arguably, this has created a large deficit in a state’s taxing ability and the revenue that states are able to generate as e-commerce continues to grow and deepen in the marketplace. South Dakota, intent on challenging Quill, has now forced the Court’s hand into making a determination as to whether Quill should be overturned now that e-commerce is common.

In March of 2016, South Dakota passed S.B. 106, which imposed sales tax registration and collection obligations on sellers that lacked physical presence within a state if the seller in the current or previous calendar year had gross revenue from sales of tangible personal property (TPP) and services delivered within the state exceeding $100,000, or sold TPP and services for delivery into the state in 200 or more separate transactions. Following this bill, South Dakota sued four out-of-state retailers seeking to affirm the validity of S.B. 106. One of the retailers registered and chose to collect sales tax, and the remaining three moved for summary judgment, which was granted by the Supreme Court of South Dakota under the restrictions imposed by Quill. The U.S. Supreme Court granted certiorari of this case in January of 2017, agreeing to look at whether the precedent set under Quill should be called into question, or even potentially overturned.

South Dakota’s Argument

While it wouldn’t be unprecedented to see the Supreme Court overturn Quill, this is not an easy argument for South Dakota to win. Under the principle of stare decisis, overturning a prior precedent set by the Court requires a demonstration of “special justifications.” The Court will consider whether their prior decision is inconsistent with other decisions, and whether the holding in Quill was harmful, important, or detrimental to the doctrine at issue. The court will also determine whether Quill should be overturned due to a change in circumstance, and will analyze the distinguishing factors between Wayfair and Quill, focusing on any statutory or constitutional interpretations that may factor into the facts of these cases.

On Tuesday, April 17, 2018, the Supreme Court began hearing oral arguments in South Dakota v. Wayfair. Among some of the more frequent concerns raised by the Justices is the concern over the immense administrative burden that making such a “binary” decision to overturn Quill would have on both states and small businesses. Immediately, the Attorney General for South Dakota was met with questions from the Justices voicing these concerns. Justice Sonia Sotomayor, stating she was “concerned about the many unanswered questions that overturning precedents will create,” indicated that this would ensure an influx of lawsuits surrounding such a massive change. Justice Sotomayor also vocalized concerns over retroactive liability for sellers if the Court were to change the physical presence standard, which would only increase the administrative burden on small businesses.

While these administrative concerns are immense, South Dakota also has a strong argument that states could lose billions in revenue over the next decade if they are unable to fully tax retailers within the e-commerce marketplace. Chief Justice John Roberts noted that, as a country we may be past the point in our history where major e-commerce-based retailers are refusing to collect and remit sales tax. He noted that the major five players in this field already comply across the board (Amazon, for instance, has long charged sales tax appropriately throughout the country). His statements highlighted the fact that these large retailers are still successful, even while complying with varying state taxing liabilities. Chief Justice Roberts noted that large e-commerce retailers no longer refuse to collect sales tax in order to enjoy a price advantage over brick and mortar stores. He said, “…if it is, in fact, a problem that is diminishing rather than expanding, why doesn’t that suggest that there [is] greater significance to the arguments that we should leave Quill in place?” The Justices noted that these larger players in the marketplace that are not of any state’s primary concern at present nor will they will necessarily feel an increased burden if Quill is overturned. Rather, small businesses will feel the impact first.

Many of the arguments have come down to whether the Supreme Court should be deciding this issue, or whether action by Congress would be more appropriate. While South Dakota argued that Congress has had more than twenty years to act, thus allowing the Court to step in, the Justices were prompt to point out that “this is something [Congress is] going to leave the way it has been for, whatever it is, 25 years.” The Court also noted that “it would be very strange for [the Supreme Court] to tell Congress it ought to do something in any particular area.” Chief Justice Roberts brought up the possibility that this is an area that Congress has simply decided to avoid. On the other hand, Justice Elena Kagan cautioned that Congress’s inaction is reason enough to proceed carefully in overturning Quill. This inaction may have the effect of raising the bar as to what would be necessary to overturn another such monumental case.

Decision Expected this Summer

While it is unclear what the fate of Quill and Wayfair will be, it is certain that no decision from this Court will be entered into lightly. The Justices are rightly concerned with the practical impact that such a massive decision would have on small retailers, specifically the increased procedural burden e-commerce vendors would face if states were permitted to impose tax on businesses lacking physical presence. Many states are struggling to increase revenue and balance their budgets, especially after the passage of the Tax Cuts and Jobs Act (TCJA). The impact of TCJA makes it clear why South Dakota is attempting to broaden its taxing authority. However, it is wise to keep in mind what overturning Quill could mean for all sides. We are in an age where the law and technology are in a constant race against each other. If Quill remains, the Wayfair case could spark a flood of new laws from states attempting to define and re-define what digital touches to a state are consistent with Quill.

A decision from this case is expected around the end of June. HBK will continue to monitor this case and its potential affect on our clients, associates and colleagues. Please contact Cassandra Baubie at cbaubie@hbkcpa.com or 330-758-8613 with any questions.