Supreme Court Determining Online Sales Tax
On January 12, 2018, the world changed for online sellers everywhere with the granting of South Dakota’s petition for a Writ of Certiorari by the U.S. Supreme Court in its case against Wayfair, Inc., Overstock.com Inc. and Newegg Inc.[1] South Dakota is asking the Court to change its mind on its prior rulings (National Bellas Hess (1967)[2] and Quill (1992)[3] , where the Court held that a seller must have physical presence in a state for that state to impose an obligation on the seller to collect sales or use tax from the consumer.
In its petition, South Dakota argued that the physical presence protections afforded by Quill deprive the states of critical tax revenues, provide online sellers an unfair advantage, and harm interstate commerce. Citing a 2009 study of state and local tax revenue losses,[4] the state argued that maintaining the precedent of Quill and National Bellas Hess is no longer justified given today’s e-commerce environment.
South Dakota also contended that the “compliance is too complex” argument is now inapplicable in today’s economy by arguing that online sellers can “instantly tailor their marketing and overnight delivery of hundreds of thousands of products…based on IP addresses [so that] these companies can surely calculate sales tax from a zip code.”
In its response to South Dakota’s petition, Wayfair, Inc. et.al. argued that South Dakota offered “assumed or speculative facts.” The defendants also noted that there is no mechanism for prospective application of taxes should the Court find in favor of South Dakota. Wayfair argued that this creates a huge potential tax risk for online sellers everywhere.
Barring extensions of time to file briefs, the case should be fully briefed by the end of April 2018. After this, the Supreme Court will schedule oral arguments.
To learn more about emerging state tax issues for retailers engaged in e-commerce, join us for a complimentary, CPE-qualified webinar on March 6.
[1] South Dakota v. Wayfair, Inc., Overstock.com Inc. and Newegg Inc. Supreme Court of South Dakota, September 13, 2017.
[2] National Bellas Hess v. Department of Revenue, 386 U.S. 753, 87 S.Ct. 1389 (1967).
[3] Quill Corp. v. North Dakota, 504 U.S. 298 (1992).
[4] “State and Local Government Sales Tax Losses from Electronic Commerce” Dr. William F. Fox, University of Tennessee, 4/23/2009.
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