Supreme Court to hear case focused on online sales tax

Supreme Court to hear case focused on online sales tax

It will be interesting to see what the Supreme Court does.

Under a 2016 law, South Dakota requires retailers with more than $100,000 in annual sales in the state to pay a 4.5 percent tax on purchases. However, many other smaller retailers don't collect sales tax unless they have a physical presence in the state where the buyer lives, relying on a 26-year-old Supreme Court decision related to catalog retailers.

The ruling won't have a direct impact in five other states - Alaska, Delaware, Montana, New Hampshire and OR - because they have no statewide sales tax.

This issue has spurred several court cases and might be resolved by the Supreme Court with South Dakota v. Wayfair on Tuesday. There are billions of dollars of tax revenue at stake here, as well as a huge potential burden on small businesses.

"That rule doesn't make sense anymore in today's world of e-commerce", said Deborah White, general counsel of the Retail Litigation Center, told Bloomberg. But as Amazon has grown, dotting the country with warehouses, it has had to charge sales tax in more and more places. Then again, Congress could go in the opposite direction, giving states more authority to collect sales taxes.

Currently Amazon and some others collect sales tax on all their direct sales but do not collect taxes on sales from other vendors that use the Amazon site.

That covered most large retailers, like Macy's and Walmart, because they have stores in almost every state.

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In the early days of ecommerce, nearly no online merchants collected sales tax, a savings for consumers that helped to offset shipping costs.

In 2017, an audit of the Federal Government Accountability Office indicated that states missed the opportunity to collect some $13.7 billion due to the Supreme Court law on state tax for online purchases.

Although South Dakota's tax law applies only prospectively, critics say overruling Quill could open retailers to years of retroactive liability in other states. For example, in Illinois, Snickers are taxed at a higher rate than Twix because foods containing flour don't count as candy.

Wayfair, Inc. immediately challenged the law and the case has now made its way to the Supreme Court, where arguments are expected to begin on April 17, and a ruling is expected by late June. South Dakota's governor has said the state loses out on an estimated $50 million a year in sales tax that doesn't get collected by out-of-state sellers.

In a court filing supporting South Dakota, more than 40 states said the retroactivity concern is overblown. The state has conceded in court, however, that it can only win by persuading the Supreme Court to do away with its current physical presence rule.

Supporters want to overturn the ruling in the "Quill vs North Dakota" case that prevented catalog sellers to remit sales taxes. The court reaffirmed that ruling in 1992. Three current justices - Clarence Thomas, Anthony Kennedy and Neil Gorsuch - have already expressed doubts about the precedent.

Big retailers like Amazon and Walmart collect sales tax on all online sales in the 45 states with a statewide sales tax. "A connection to a shopper's favorite store is a click away regardless of how close or far the nearest storefront".

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