Holly Jones, owner of Holly Locksmiths Inc., finds herself in a difficult position.Should she acquiesce to an inquiry from the State of Wisconsin about her presence in the State and requirement to collect sales tax on behalf of the State of Wisconsin or fight the case on Jurisdictional grounds?

For years, Holly has provided locksmith services to a large sporting goods store known as Pete's Sports with locations across America.Holly's team has routinely sold gun safes to Pete's stores when a new location has opened.Holly would source the safe based on Pete's specifications find a trucker to pick up the safe from Syracuse, NY and deliver it to the appropriate location.Upon arrival, Holly would have contracted with an installation independent contractor, who did business in the State of delivery, to install the safe pursuant to Pete's specifications.None of Holly's employees left Syracuse to perform installation or repair services and Holly has never traveled to the new locations to check on the job or the independent contractor's performance.This practice has gone on for the past 10 years without question.Holly has never charged sales tax on these sales since it was sent to an out of state retailer and Holly is only licensed to do business in the State of New York.During 2019 Holly was engaged in two stores setups in the State of Wisconsin.

Additionally, about 5 years ago, at the urging of her best employee Joe, Holly engaged in the sale of safe and lock parts over the internet.She engaged with Amazon to list various safe and lock components and used the fulfillment services of these distribution giants to hold the inventory and deliver the goods.The website that offered the sale was owned and operated by Holly.Upon receipt of an order it would either be shipped directly through the Syracuse warehouse or the order was sent to Amazon who also held inventory on behalf of Holly and sent to the customer.If the customer was in New York State, Holly charged, collected and paid the New York State Sales tax; however, Holly did not collect sales tax for any other state where the goods where shipped.

Sales tax law of each state in sum and substance states that the purchaser must pay sales tax on any qualifying purchase unless the goods are exempted by law.None of the parts and locks sold over the internet were exempt purchases.Sales tax law further would require the selling party to register as a sales tax agent and collect the sales tax from the purchaser.However, without any physical presence in the State, no sales people in the State, and no inventory in the State (see generally Washington v International Shoe) a seller engaged in sales over the internet has not been required to collect sales tax.

However, On June 21, 2018, The United States Supreme Court ruled 5-4 in South Dakota v.Wayfair (585 US __ (2018)that states can mandate that businesses without a physical presence in a state and with more than 200 transactions or $100,000 of in-state sales must collect and remit sales taxes on transactions in that state.This decision has established the new bright line test that all States must follow to require out of State vendors or internet vendors to collect and remit sales tax.Additionally, most states initiated audit inquiries against Amazon who in an effort to shed their own liability for collecting sales tax provided State governments with reams of information about their clients who were the ultimate beneficiary of the internet transactions which triggered audits of Amazon's customers.

Holly's Locksmith Inc., has received an audit inquiry from the State of Wisconsin.She has entered your office to determine if or how she should answer the summons and complaint issued by a State Trial level Court on Wisconsin for the underpayment of sales tax.The amount of the dispute is estimated to be $50,000 with penalties and interest included.An excerpt from the Wisconsin Tax Department outlines the Wisconsin law as follows:

The United States Supreme Court recently ruled inSouth Dakota v. Wayfair, Inc., that a state can require out-of-state sellers without a physical presence in that state (i.e., remote sellers) to collect and remit sales or use tax on sales delivered into that state.

Beginning October 1, 2018, Wisconsin requires remote sellers to collect and remit sales or use tax on sales of taxable products and services in Wisconsin. New standards for administering sales tax laws on remote sellershave beendeveloped by rule. The ruleis consistent with the Court's decision inWayfair,which approved a small seller exception for sellers who do not have annual sales of products and services into the state of (1) more than $100,000, or (2) 200 or more separate transactions. Effective December 16, 2018, Wisconsin sales and use tax statutes were amended (2017 Wis. Act 368) to provide the small seller exception by law, consistent with the Court's decision inWayfairand the rule.

Note:The small seller exceptiondoes not apply to sellers with a physical presence in Wisconsin.

The State of Wisconsin, under information and belief, claims that Holly's transactions with the gun safes amounts to a physical presence in the State and therefore she can be commanded to come answer the suit in Wisconsin.Further, the internet sales through Amazon and via Holly's website along with safe installations for the past three years into Wisconsin are as follows:

201720182019

Through Amazon35 transactions $21,22041 transactions $29,51076 transactions $58,000

Via the website15 transactions $12,45020 transactions $17,32525 transactions $21,900

Safe Installs4 worth$40,0005 worth$50,0002 worth$20,000

Your review of Wisconsin law to establish long arm Jurisdiction indicates the following:General jurisdiction would exist if activities were "substantial or continuous and systematic".Specific or Personal Jurisdiction can only be acquired based on a three-part test whereby the defendant (1) purposefully availed himself of the laws of Wisconsin whereby the nonresident did some act or consummated some transaction which invoked the benefits and protections of Wisconsin; (2) the claim must arise out of or result from the defendant's acts in Wisconsin and (3) the exercise of jurisdiction must be reasonable.

You, also note from your review of case law (stare decisis) that State Courts have been very careful in their application of the purposely availed part of the test.Something more than just a posting had to occur to climb the first part of the test.In fact, Courts further clarified the purposely availed part of the test by what was known as the "effect doctrine".In summary the effect doctrine indicates that the defendant's conduct may give rise to personal jurisdiction if Holly could have foreseen that her actions might avail her to the laws of some other jurisdiction.There has to be some other conduct beyond just merely posting on the internet.

All of this is very confusing and because of "Wayfair" you are concerned that some of the test noted may be softened and adjusted.

What is your answer and or advice to Holly based on these facts and rules of law?