A new South Dakota lawsuit against three big-time internet retailers has quickly climbed its way up to the U.S. Supreme Court, earning the possibility of a ruling that could change the law regarding internet sales tax.
The lawsuit began when the companies Wayfair Inc., Overstock.com Inc., and Newegg Inc. contested South Dakota’s new state law that all internet businesses should now collect and pay sales tax – the three companies claiming the law to be unconstitutional by pointing to a 1992 Supreme Court ruling holding that state governments cannot force businesses to pay sales tax unless they have a “physical presence” within that state.
With an estimated $13 billion in internet sales tax that could have gone to the government through 2017 alone, for both online merchants and respective state governments, the lawsuit’s ruling has a lot hanging in the balance.
“In light of internet retailers’ pervasive and continuous virtual presence in the states where their websites are accessible,” argued Solicitor General Noel Francisco in court, “the states have ample authority to require those retailers to collect state sales taxes owed by their customers.”
Additionally, by allowing some out-of-state merchants to avoid collecting sales taxes, the government believes it “imposes a competitive disadvantage on in-state retailers and encourages the state’s citizens to take their business elsewhere”.
Nationally, all but five states collect sales taxes – 35 of those states supporting South Dakota’s side in the case, along with President Trump’s administration.
Though not directly involved in the lawsuit, Amazon.com Inc., the world’s largest online retailer, will definitely be affected should the court decide on a ruling in favor of South Dakota. Though actively collecting sales tax in each imposing state when selling its own inventory, according to a company spokesman, about half of Amazon’s sales are earned through goods sold by third-party merchants. As a result, it’s up to the seller to collect sales tax from their customers and many of them fail to do so.
Hearings began on April 17, 2018, and the U.S. Supreme Court justices expect to reach a ruling on South Dakota v. Wayfair by late June.
(Thanks to this article by Greg Stohr for the research!)
