The issue of state tax paid by internet-based retailers is set to get the U.S. Supreme Court treatment.
The court agreed Friday to take up an appeal of South Dakota’s lawsuit against a trio of online companies, Wayfair, Overstock.com and Newegg, over their refusal to submit to a new state law forcing them to remit sales tax, even without any physical presence in the state. The decision was released without explanation, as is customary.
It seemed likely that the justices would agree to look at the case when it came their way in September, given the continued legal hubbub stemming from a 1992 Supreme Court ruling in Quill Corp. v. North Dakota, which found that a “physical presence” for a direct mail or online company was required in a given state before a company could be forced to remit sales tax.
South Dakota Supreme Court justice Glen Severson cited Quill when he ruled against his state’s law requiring Internet retailers to pay state taxes, but state attorney general Marty Jackley said then that it merely paved the way for a Supreme court intervention.
Jackley’s office also noted that the state’s litigation was aimed at getting the issue in front of the U.S. Supreme Court, given the “extraordinary growth” of online retail over the last 25 years.
In 2016, South Dakota passed a law requiring out-of-state retailers doing more than $100,000 in annual sales or counting more than 200 transactions in a year to collect sales tax, something the state sees as a serious revenue booster. But that law was challenged by some online retailers as going against federal law set down by Quill.
Should the Supreme Court find that online retailers need to comply with state tax laws, essentially overriding Quill, it could mean many billions of dollars in additional revenue for state governments. The National Conference of State Legislatures has pegged lost revenue for states due to the Quill “loophole” at more than $17 billion.
Amazon, the best-known e-tailer in the U.S. and likely many other parts of the world, preemptively began in 2011 remitting state sales tax in a handful of states, and went on to do so in every state with such laws. Not all online retailers followed suit.
The National Retail Federation, an industry lobbying group that counts Wal-Mart Stores Inc., Target Corp. and many other retailers as members, said it “welcomed” the Supreme Court’s choice to look at the issue.
“Unfortunately, antiquated sales tax collection rules have resulted in an uneven playing field that’s making it harder for Main Street retailers to compete in today’s digital economy,” said Matthew Shay, NRF’s president and ceo. “This is a basic question about fairness, which all of our members deserve whether they’re selling in stores or online.”
Shay said he’s “hopeful” that the court will end Quill, but urged Congress to work to settle the tax issue as well.
“It’s time to pass legislation to settle this critical issue once and for all,” Shay added. “Even if he court rules in favor of a modern sales tax policy, legislation will still be needed to spell out how that would work.
Counsel for the defending retailers could not be reached for comment.
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