Supreme Court Will Reassess Sales Tax for Online Retailers
The Supreme Court will soon reassess a 25-year-old ruling that governs how online retailers charge (or don’t charge) sales tax for their transactions. The state of South Dakota proposed a writ of certiorari, available on the Retail Litigation Center website, asking the Supreme court to review Quill Corp v. North Dakota from 1992.
In the Quill case, the Supreme Court determined that retailers would not be required to collect state taxes if they did not have a physical location within that state. So a retailer located in Texas would not collect sales tax for a purchase made in Oklahoma, as long as that retailer did not have a physical building in Oklahoma.
Quill Corp was a catalog retailer, and the ruling made sense when catalog sales were at their peak. No one could have predicted how vast the online retail market would become.
The problem now is that web-based sellers are able to bypass sales tax in most cases, putting less money in the states’ pockets. This also encourages shoppers to buy online instead of buying locally because they know they won’t have to pay tax on their purchases. Shoppers are required to enter their address before submitting their payment information for an online purchase, so retailers have the opportunity to easily assess the sales tax for each transaction.
South Dakota has a law requiring out of state retailers to pay state sales tax if they conduct more than $100,000 worth of business within the state, or if they have more than 200 sales in a year. This is designed to protect small online sellers, even though small brick and mortar businesses have to pay tax regardless of their sales volumes.
The petition for certiorari requests an immediate review of the policies. It says that “because States must balance their books each year, they badly need to know whether to count on increased sales-tax collections, or not, for the coming year.”