Supreme Court to Rule on Online Sales Tax

Henrietta Strickland
April 20, 2018

Ideally, Congress would answer those questions in a law permitting states to require out-of-state vendors to collect sales taxes from their residents.

At Tuesday's arguments, several justices anxious that overturning the earlier rulings would leave important questions unanswered, such as whether there should be a minimum number of sales into a state before a retailer would have to collect taxes, and whether states could require retailers to go back and collect taxes from prior years' customers. This case hopes to reverse a 1992 ruling known as Quill v. Out-of-state online retailers Wayfair, Overstock and Newegg are contesting South Dakota's authority to collect the taxes, and won in the lower courts.

Along similar lines, Justice Sonia Sotomayor said the questions raised in the case are "wrought with difficulties". "Needless to say, we welcome the court's interest in hearing the case and remain hopeful", Egan says.

"Why should this court favor a particular business model?"

Lisa Soronen, executive director of the State and Local Legal Center, and Max Behlke, director of budget and tax for the National Conference of State Legislatures, also expressed optimism Quill will be overturned, noting four Supreme Court justices seemed favorable to overturning Quill and that only five votes are needed to make a ruling.

Justice Sotomayor noted the host of hard questions that would ensue if Quill was overruled, including retroactivity, determining the level of contact that would be sufficient to impose the use tax collection burden, and the cost to small businesses of implementing collection, which she correctly understood encompassed much more than just using a software program. Justice Ruth Bader Ginsburg made a similar point, saying that it was not Congress' job "to overturn our obsolete precedent".

The United States Supreme Court will decide this week, whether to allow states to tax all online sales. In addition, states are losing massive amounts of potential sales tax revenues and small businesses are hurt by what many see as an uneven playing field between brick-and-mortar versus online retailers.

South Dakota depends more than most states on sales taxes because it is one of nine that do not have a state income tax. SB 106 provides that remote sellers are deemed to have nexus if in the previous or current calendar year they have (a) $100K or more in gross revenue from the delivery of taxable products or services into South Dakota or (b) 200 or more in-state transactions. Two states recently enacted laws requiring such collections.

Other reports by Click Lancashire

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