U.S. Supreme Court to Review Bid to Collect Internet Sales Tax
U.S. Supreme Court to Review Bid to Collect Internet
Sales Tax
South Dakota says 1992 ban on many tax collections is
obsolete
States could have collected $13 billion more in 2017: GAO
By Greg Stohr January 12, 2018, 11:46 AM PST Updated on
January 12, 2018, 12:04 PM PST
The U.S. Supreme Court will consider freeing state and
local governments to collect billions of dollars in sales taxes from online
retailers, agreeing to revisit a 26-year-old ruling that has made much of the
internet a tax-free zone.
Heeding calls from traditional retailers and dozens of
states, the justices said they’ll hear South Dakota’s contention that the 1992
ruling is obsolete in the e-commerce era and should be overturned.
State and local governments could have collected up to
$13 billion more in 2017 if they’d been allowed to require sales tax payments
from online merchants and other remote sellers, according to a report from the
Government Accountability Office, Congress’s non-partisan audit and research
agency. Other estimates are even higher. All but five states impose sales
taxes.
Online retailers Wayfair Inc., Overstock.com Inc. and
Newegg Inc. are opposing South Dakota in the court fight. Each collects sales
taxes from customers in only some states.
The case will also affect Amazon.com Inc., though the
biggest online retailer isn’t directly involved. When selling its own
inventory, Amazon charges sales tax in every state that imposes one, but about
half of its sales involve goods owned by third-party merchants. For those
items, the company says it’s up to the sellers to collect any taxes, and many
don’t.
The court probably will hear arguments in April with a
ruling by the end of its nine-month term in late June.
‘Physical Presence’
The high court’s 1992 Quill v. North Dakota ruling, which
involved a mail-order company, said retailers can be forced to collect taxes
only in states where the company has a “physical presence.” The court invoked
the so-called dormant commerce clause, a judge-created legal doctrine that bars
states from interfering with interstate commerce unless authorized by Congress.
South Dakota passed its law in 2016 with an eye toward
overturning the Quill decision. It requires retailers with more than $100,000
in annual sales in the state to pay a 4.5 percent tax on purchases. Soon after
enacting the law, the state filed suit and asked the courts to declare the
measure constitutional.
“States’ inability to effectively collect sales tax from
internet sellers imposes crushing harm on state treasuries and brick-and-mortar
retailers alike,” South Dakota said in its Supreme Court appeal.
Wayfair, Overstock and Newegg said the court should
reject the appeal and leave it to Congress to set the rules for online taxes.
Expressing Doubts
“If Quill is overruled, the burdens will fall primarily
on small and medium-size companies whose access to a national market will be
stifled,” the companies argued. “Congress can address this issue in a balanced
and comprehensive manner through legislation.”
Three current justices -- Clarence Thomas, Neil Gorsuch
and Anthony Kennedy -- have expressed doubts about the Quill ruling. Kennedy
said in 2015 that Quill had produced a “startling revenue shortfall” in many
states, as well as “unfairness” to local retailers and their customers.
“A case questionable even when decided, Quill now harms
states to a degree far greater than could have been anticipated earlier,”
Kennedy wrote. “It should be left in place only if a powerful showing can be
made that its rationale is still correct.”
Gorsuch, the newest Supreme Court justice, suggested skepticism
about Quill as an appeals court judge. And Thomas has said he would jettison
the entire dormant commerce clause, saying “it has no basis in the Constitution
and has proved unworkable in practice.”
Amazon backs a nationwide approach that would relieve
retailers from dealing with a patchwork of state laws. Amazon once relied on
the Quill ruling and didn’t collect sales tax at all; the company gradually
changed its position as it built warehouses all over the country, giving it a
greater physical presence in multiple states.
The case is South Dakota v. Wayfair, 17-494.
— With assistance by Spencer Soper
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