Clicking 'checkout' could cost more after Supreme Court case

Marco Green
April 16, 2018

The ability to avoid paying sales tax was one of the attractions of online shopping in its early days.

Any change in the status quo should come not from the Supreme Court but from Congress, the retailers argue, which could implement national rules rather than open up the companies to having to deal with the specific requirements of what they say are 12,000 taxing jurisdictions nationwide.

A high-stakes showdown at the U.S. Supreme Court on Tuesday will determine whether states can force out-of-state online retailers to collect sales taxes in a fight between South Dakota and e-commerce businesses.

The counter argument is that it is very hard for retailers to maintain sales tax accounts in all states they ship to.

Large retailers want all businesses to "be playing by the same set of rules", said Deborah White, the president of the litigation arm of the Retail Industry Leaders Association, which represents more than 70 of America's largest retailers.

The case will also affect e-commerce behemoth Inc., though less directly.

Broader taxing power would let state and local governments collect an extra $8 billion to $23 billion a year, according to various estimates.

Computer software lessens the difficulty of correctly applying the right sales tax no matter where the purchase is made, the state says. South Dakota and other state and local governments say they've been cheated out of billions of dollars because of this rule. "And the more types of products I sell, the more hard it is to map to the software that's out there".

Amazon and Walmart, two of the giants of online retailing, collect sales tax on all their sales in the 45 states that have a statewide sales tax.

This week the Supreme Court is considering a case that could end for good a precedent that allows online retailers to not charge sales tax.

Many smaller retailers don't; unless they have a physical presence in the state where the buyer lives.

The Trump administration will join the oral argument in favor of online retailers being required to collect sales taxes everywhere.

Led by South Dakota, the states ask the court to overturn its 1992 decision in Quill v.

The Quill ruling, involving a mail-order company, centered on the Constitution's so-called dormant commerce clause, a judge-created legal doctrine that says states can't unduly burden interstate commerce unless authorized by Congress.

It's unclear how the justices might align on the question this time. "The data we have show that most people don't actually pay attention to the amount of sales tax that is being collected".

South Dakota and its allies say "physical presence" is an increasingly elusive concept in the era of internet storefronts and smartphone apps. State legislators knew the measure was unlawful under the 1992 precedent.

"This court's outdated physical-presence rule now causes outsized harms to state treasuries and fundamental unfairness among retailers", South Dakota argued in court papers.

"The convenience of online shopping has come to outweigh the idea that I'm going to buy something online to get it sales-tax-free", he said.

But small businesses that sell online say the complexity and expense of collecting taxes nationwide could drive them out of business.

In a court filing supporting South Dakota, more than 40 states said the retroactivity concern is overblown. The court reaffirmed that ruling in 1992. But three justices - Neil Gorsuch, Clarence Thomas and Anthony Kennedy - have suggested a willingness to rethink those decisions.

Many small retailers depend on online sales. It "has no basis in the Constitution and has proved unworkable in practice", he wrote. But since 2017, Amazon has been collecting sales tax in every state that charges it. Third-party sellers that use Amazon to sell products make their own tax collection decisions, however.

South Dakota, which has no income tax, is especially dependent on sales tax.

Other reports by Click Lancashire

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