Supreme Court to hear arguments on internet sales tax collections

Marco Green
January 14, 2018

Under previous Supreme Court rulings, when internet retailers don't have a physical presence in a state, they can't be forced to collect sales tax on sales into that state.

Part of the court's logic was that it would be too hard for mail order companies to compute the widely varying tax rates among, and even within, the 50 states.

That would be a victory for states and traditional businesses, but a defeat for smaller online retailers who claim they can not navigate dozens of state sales tax systems the way major players such as Amazon do.

Internet companies "can instantly tailor their marketing and overnight delivery of hundreds of thousands of products to individual customers based on their IP addresses".

The clear signal from the justices is that they may be ready to reverse themselves and demand that online retailers collect and remit sales taxes, even in states where they have no physical presence. According to one estimate cited by the states in a brief they filed with the high court, they'll lose out on almost $34 billion in 2018 if the Supreme Court's previous rulings stand.

In defiance of Quill, some states have come up with laws requiring out-of-state retailers to collect sales tax on their behalf from in-state residents.

By taking on a law passed by South Dakota's legislature for the express goal of testing its legality, the court will return to an issue it addressed 25 and 50 years ago, before consumers did almost 10% of their shopping on the internet. The state's highest court struck down the law, citing previous Supreme Court decisions. Then, to help boost their chances, lawyers for the state helped to solicit 15 "friend of the court" briefs from retailers, states, economists and others even before the justices made a decision to hear the case.

Supreme Court to hear arguments on internet sales tax collections
Supreme Court to hear arguments on internet sales tax collections

In response, the internet companies said collecting taxes is vastly more complicated and expensive than it was in 1992, because the number of local taxing entities has more than doubled.

They urged the Supreme Court to stay out of the fight while Congress is considering what to do.

Wayfair, Overstock and Newegg said the court should reject the appeal and leave it to Congress to set the rules for online taxes. said in a statement Friday that it "looks forward to the opportunity to convince the Supreme Court to confirm its prior rulings protecting the free flow of interstate commerce from overreaching state tax laws".

The U.S. Supreme Court has agreed to take up a South Dakota case this term that could reset the balance between online and physical store sellers by requiring taxation of goods sold by out-of-state merchants, Bloomberg has reported. "This is a basic question about fairness, which all of our members deserve whether they're selling in stores or online", federation president Matthew Shay said in a statement.

Gorsuch, the newest Supreme Court justice, suggested skepticism about Quill as an appeals court judge.

Other reports by Click Lancashire

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