Supreme Court hears arguments on collection of sales tax for online purchases

The Government Accountability Office last year estimated that governments were losing up to $13 billion a year in uncollected sales tax because of online sales. North Dakota not only costs state and local governments significant revenue that they are owed, but also puts many main street retailers at a disadvantage by requiring them to collect a tax that online and out-of-state businesses do not.

But plenty of smaller players, such as home furnishings websites and Wayfair, don’t have widespread enough operations to be subject to the tax law, giving them a substantial price advantage over traditional brick and mortar businesses.

The justices heard arguments Tuesday. Sign up for RG Newsletters and get the news delivered directly to your inbox.

“Congress has had 26 years to act, and they haven’t”, said Jackley.

“Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the court’s holding in Quill”.

Amazon is a notable exception; the online distribution giant started collecting sales tax in the Hoosier state in 2014. Third-party sellers who sell goods on the site don’t have to, however. Justices brought up that issue Tuesday too. “All of these are questions that are wrought with difficulties”, said Justice Sonia Sotomayor, who seemed to have the backing of Roberts. “How much does it cost him to enter that market?”

“It’ll affect small business owners like me more because we are just a single person operation or a few persons operations having to figure out all 50 tax laws of this country”, Fiorino said. A court spokeswoman said the 63-year-old Sotomayor would begin physical therapy and was not expected to miss any work. If the states win in the Supreme Court, “a lot of us could be out of business”. Jackley said even a single sale into a state by an out-of-state retailer could be enough if other states wanted to craft their laws that way.

South Dakota, joined by most states, including Pennsylvania, have asked the U.S. Supreme Court to clear things up so they can know who can be forced to collect sales tax from online sales.

Breyer raised “empirical questions” that can not be answered in the case, such as whether such sales tax collection would create barriers to entry for small businesses.

The state is appealing a lower court order that favoured three online retailers. 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.

The Supreme Court is focused on an appeal by South Dakota after that state’s Supreme Court determined that it would be illegal for South Dakota to collect tax from retailers who don’t have a presence in the state, said Jeffrey Johnson, a Department of Revenue spokesman. That revenue source is becoming increasingly critical to state governments as citizens do more of their shopping over the internet – it’s only 9% of all retail sales now, but growing steadily. “So from a State Tax Department, we obviously have an interest in this as well”.

So one of the biggest questions in the South Dakota case is whether the requirements for out-of-state vendors to collect sales tax is really creating an uneven playing field for in-state and out-of-state companies.

Supreme Court Case Could Change Sales Tax Rules For Online Retailers