Big Bucks At Stake In SCOTUS Sales Tax Case

Alonzo Simpson
April 16, 2018

The debate about paying sales tax on online purchases is heading to the U.S. Supreme Court.

This law was challenged by the state of South Dakota as it seeks to collect sales taxes from out-of-state internet retailers. They say they're losing out on "billions of dollars in tax revenue each year, requiring cuts to critical government programs" and that their losses compound as online shopping grows.

A ruling favouring South Dakota could help small brick-and-mortar retailers compete with online rivals while funnelling up to $18 billion into the coffers of the affected states, according to a 2017 federal report. But small businesses that sell online say the complexity and expense of collecting taxes nationwide could drive them out of business.

"Although online businesses may not have a physical presence in some states, the Web has, in many ways, brought the average American closer to most major retailers", he wrote in suggesting the days of inconsistent sales tax collection may be numbered.

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.

But numerous sales these small retailers get are through bigger sites like Amazon and Walmart.

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Retailers fighting the states say they would be hit with heavy costs of complying with rules for thousands of products in thousands of cities, counties and even airports that serve as their own taxing jurisdictions. "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 Trump administration will join the oral argument in favor of online retailers being required to collect sales taxes everywhere. The state is urging the court to let sales taxes be imposed on companies with an "economic presence" in a state - a test South Dakota says its law would pass.

South Dakota says the high court's previous decisions don't reflect today's world. At the time, the court was concerned in part about the burden collecting sales tax would place on the catalog company.

It's unclear how the justices might align on the question this time. "The "physical presence" rule of those eras was enunciated by the Court long before virtual presence was even imaginable", added White. But three justices - Neil Gorsuch, Clarence Thomas and Anthony Kennedy - have suggested a willingness to rethink those decisions.

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