Justices take on changed retail landscape in tax case

- April 17, 2018

The Supreme Court grappled Tuesday with whether to sweep away decades of precedent and allow states to collect sales tax from out-of-state online retailers — and pre-empt Congress in the process.

In the hearing on South Dakota v. Wayfair, Justices Anthony Kennedy and Neil Gorsuch strongly suggested that the court had erred in a 1992 case dealing with mail-order companies, the last time it considered whether to overturn the ban on states. Gorsuch called the ruling “antiquated.”

But Chief Justice John Roberts and Justice Stephen Breyer, among others, wondered whether upending current precedent would hurt smaller retailers more than larger ones, and Justice Sonia Sotomayor asked about the burdens of sales tax collection.

States currently cannot force businesses without a physical location within their borders to charge sales taxes, based on a Supreme Court precedent last upheld in 1992.

But some of the justices say that ruling failed to predict the rise of internet shopping, and states and certain retail advocates say the current precedent hurts both state governments’ bottom lines and the brick-and-mortar businesses that are forced to collect sales taxes. The current case arose from a South Dakota law that sought to compel collection by online retailers.

South Dakota and the companies challenging its law offered vastly different arguments on how simplified the sales tax collection process is and the ease of using special software to aid collection.

Supporters of the current precedent argue that requiring collection would be a heavy burden for online retailers, especially smaller ones, forcing them to wade through thousands of sales tax jurisdictions.

The two sides also disagreed on the size of the problem, with Attorney General Marty Jackley of South Dakota noting that states are estimated to lose out on at least $100 billion over a decade.

The companies have noted that states already collect the vast majority of taxes on sales from leading internet retailers.

“Both are logical,” Breyer said at one point. “How do I decide who is right?”

Another question hanging over the proceedings is whether to give Congress more time to legislate. The 1992 ruling in Quill Corp. v. North Dakota also invited Congress to legislate, but lawmakers — especially Republicans — have butted heads for years over the issue.

Congress had a big enough window to act, Jackley said, but Sotomayor wondered if there was a “signal” the court could send to lawmakers about legislation.

Kennedy himself invited Tuesday’s arguments, writing in a concurrence to a related 2015 case that the court should reconsider the Quill decision.

South Dakota took Kennedy up on the invitation, passing a law that forced out-of-state retailers with certain sales thresholds to collect sales taxes. Three of those companies — Wayfair, Newegg and Overstock — were defendants in Tuesday’s case.

The case has drawn increased interest because of President Donald Trump’s continued barrage of accusations that Amazon doesn’t collect enough taxes, though the online shopping giant does so in 45 states on direct sales. The Trump administration also argued for increased state sales taxing power on Tuesday.


 

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