South Dakota E-Commerce Sale Tax Fight Reaches US Supreme Court

Growing Number of State Sales Tax Jurisdictions Makes South Dakota v. Wayfair That Much More Imperative

During arguments in South Dakota vs. Wayfair Tuesday, the justices debated whether online retailers must collect sales tax on purchases made even in states where they do not have a "physical presence", say in the form of an office, warehouse or distribution facility. If e-tailers must pay more in taxes, they will lose a price advantage they have held for years.

Several justices anxious that allowing states to reach outside their borders to collect sales taxes could create messy legal questions and endless litigation. "There's older caselaw that, in essence, predates the Internet and in that older caselaw the Supreme Court said, states, no you can't tax a business not in your state". Amazon, which is not involved in the case before the Supreme Court, collects sales taxes for goods that it sells directly but not for merchandise sold by third parties.

"We stand with our community of 1.9 million Etsy sellers-and all microentrepreneurs-and ask the U.S. Supreme Court to support small businesses and leave Quill intact".

The court's interest in reexamining the physical-presence rule comes from a case Brann and Isaacson litigated in front of the court in 2014-2015 for the Direct Marketing Association. "If time and changing conditions have rendered (the Quill decision) obsolete, why should the court say: Well, well let Congress fix it?"

"Nobody on the other side is even contending that if every state did exactly what South Dakota has done, that the burdens would be exorbitant", Stewart said. Other states also have passed similar economic nexus provisions to alleviate the lost sales tax revenue and to level the playing field for in-state retailers. North Dakota and violates the Internet Tax Freedom Act (ITFA) enacted by Congress in 1998. The court is revisiting its 1992 ruling in Quill Corp. v. "But Congress is capable of crafting compromises and trying to figure out how to balance the wide range of interests involved here". Roberts anxious that requiring people who run their own websites to collect sales taxes for an estimated 12,000 taxing jurisdictions across the nation would be overly burdensome.

Three justices - Anthony Kennedy, Clarence Thomas and Neil Gorsuch - have questioned the wisdom of Quill.

"Why should this court favor a particular business model that relies not on brick and mortar, but on mail order?" Those collections come under existing laws that only require companies to collect sales tax if they have a physical presence in the state.

South Dakota Attorney General Marty Jackley told the justices that the case has tremendous implications both for states eager to get sales tax and from local businesses who are competing against online retailers.

The California state sales tax is 7.25 percent, and cities and counties may add to that.

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