Supreme Court to rule whether e-retailers pay state sales tax

Dive Brief:

  • The Supreme Court on Friday decided to take up a contentious debate over whether online sellers would be required to collect sales tax in the same way local physical stores do. The court also urged Congress to address the issue through legislative efforts.
  • The court was petitioned to take up the case in October when South Dakota Attorney General Marty Jackley (R) asked the court to to review the South Dakota Supreme Court decision State of South Dakota v. Wayfair, Overstock and Newegg. Jackley at the time called on SCOTUS to "level the playing field" by overruling the physical-presence requirement set as a precedent 25 years ago in the Quill Corp v. North Dakota case.
  • Matthew Shay, the head of the National Retail Federation, called the move "encouraging" in a statement. "Congress should not sit on the sidelines as the Supreme Court considers this case. It’s time to pass legislation to settle this critical issue once and for all. Even if the court rules in favor of a modern sales tax policy, legislation will still be needed to spell out how that would work," he said. 

Dive Insight:

Reversal of the precedent would be a big win for brick-and-mortar businesses that for years have argued against the unfair advantages given to e-commerce businesses.

Twenty five years ago, SCOTUS ruled that states could not require out-of-state retailers to collect sales tax unless they had a physical presence in the state. But back in 1992, the dot-com boom had yet to hit, and merchants and consumers had not foreseen the impact that e-commerce would come to have on the industry. Today, with pure-play online merchants like Stitchfix and e-commerce marketplaces from the likes of Amazon dominating retail segments, Jackley said it’s time to modernize online sales tax rules — and he’s not alone.

For nearly a decade, retailers and trade organizations including the NRF and the Retail Industry Leaders Association, have lobbied Congress to pass legislation to end competitive advantages that the ruling inadvertently extended to e-commerce players.

The original case stems from a 2016 North Dakota state law requiring out-of-state merchants with annual in-state sales totaling more than $100,000 or 200 separate transactions to collect and remit sales tax, which was struck down by the state Supreme Court due to precedent. 

For years, one of the biggest adversaries in the online sales fight was Amazon. But the e-commerce giant has been collecting sales tax for years now in most states, and as of April 1 2017 it began collecting in all remaining states with such levies. It is unclear when the justices will reach a decision.

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