June 25, 2018

Back in April, IOPFDA joined the Advocates for Independent Business and signed on to the legal briefing in support of the collection of sales tax from internet retailers.  You can read this legal brief here

On June 21, the U.S. Supreme Court handed down it's anticipated decision in South Dakota v. Wayfair.  The case challenges South Dakota's application of its sales tax to internet retailers who sell into South Dakota but have no "physical presence." 

The physical presence standard was established in a 1992 case, Quill Corp. v. North Dakota, which held that states cannot force sales tax collection by vendors who do not have personnel or property in the state.  Since 1992, many states have used and abused the physical presence rule to greatly expand their taxing powers. 

In the majority opinion, the Court ruled that the state’s law was not burdensome for interstate commerce.  At the same time, it adopted a rule limiting state power, making it clear that more complex or overreaching laws would be overly burdensome. 

All eyes will now shift to Congress and the states. Congress has been stymied between alternate versions of federal solutions: 

 One version lets states collect if they agree to simplify their sales taxes.

  • The other version would make the sales tax a business obligation rather than a consumer obligation, and have it collected based on the tax rate where the company is located but send the revenue to the jurisdiction where the customer is located.   

One thing that will be important to remember as states look to grapple with last week’s decision: This ruling is not a blank check.  The Court specifically observed that South Dakota’s law, and its tax laws generally, minimizes the burden on interstate commerce. Other states should craft their laws accordingly.  

This is a victory for our Independent Dealers and brick-and-mortar businesses everywhere that have long complained they are put at a disadvantage by having to charge sales taxes while many online competitors do not. It was also a victory for states that have said that they are missing out on tens of billions of dollars in annual revenue.