Clicking 'checkout' could cost more after Supreme Court case

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At issue in the South Dakota case is a rule stemming from two, decades-old Supreme Court cases: If a business is shipping to a state where it doesn't have an office, warehouse or other physical presence, it doesn't have to collect the state's sales tax.

If it's reversed, that could mean all online retailers have to collect taxes everywhere.

Those fighting the change say that it would impose an undue burden on small retailers who would owe not just state sales taxes but local sales taxes that many states and counties also impose. But online-only merchants-especially the large number of independently-owned businesses on sites like Etsy and Ebay-worry that this is more of a cash grab by state and local governments. Although all collect taxes in other parts of the country - 25 states for Wayfair, eight for Overstock and six for Newegg - they've been able to skirt South Dakota because they don't have a physical presence there.

Additionally, independent businesses on websites like Etsy and Ebay would be included in a rewritten sales tax law, as well as third party merchants that operate in Amazon's global marketplace, which totaled almost two-thirds of the company's gross merchandise volume at $313.4 billion. Amazon collects sales tax on its own products, but not on other businesses' products that are sold through its website.


Based on a prevailing Supreme Court law, retailers can be forced to collect taxes only in states where the company has physical presence. However, the vast majority of purchasers do not pay tax on these transactions (98-99%), and it's likely that many aren't even aware of this law. "Such a rule firmly establishes the boundaries of legitimate state authority to impose a duty to collect sales and use taxes and reduces litigation concerning those taxes".

The case now before the Supreme Court involves South Dakota, which has no income tax and relies heavily on sales tax for revenue.

In 2016 the state passed a law requiring those sellers to collect taxes on sales into the state, a law challenging the Supreme Court precedents.

South Dakota and its allies say "physical presence" is an increasingly elusive concept in the era of internet storefronts and smartphone apps.


"Today's online giants do not need or deserve the special tax treatment that the Court gave mail order catalog companies a half century ago", Deborah White, General Counsel for the Retail Industry Leaders Association, said in a statement last month.

It's unclear how the justices might align on the question this time. The court first adopted its physical presence rule on sales tax collection in a 1967 case dealing with a catalog retailer. The court reaffirmed that ruling in 1992. Three current justices - Clarence Thomas, Anthony Kennedy and Neil Gorsuch - have already expressed doubts about the precedent.

The case is South Dakota v. Wayfair, 17-494.


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