Published: Tue, April 17, 2018
Global | By Shelia Dennis

Battle over sales taxes on online purchases heads to Supreme Court

Battle over sales taxes on online purchases heads to Supreme Court

The Supreme Court is expected to issue a decision this summer.

The court is scheduled to hear oral arguments this morning on a 2016 South Dakota law that requires online merchants with more than $100,000 in sales to state residents or 200 transactions with state residents to collect sales tax.

Such a ruling could help small brick-and-mortar retailers compete with online rivals while delivering up to $18 billion into the coffers of the affected states, according to a 2017 federal report. South Dakota projects its revenue losses because of online sales that do not collect state taxes at around $50 million annually, while its opponents in the case estimate it as less than half that figure.

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Mark Bartholomew, a professor of law at the University at Buffalo, said New York's laws are stringent when it comes to online sellers and sales tax (They could have been more stringent: Gov. Cuomo proposed the Internet Fairness Conformity Tax in the 2019 state budget, but lawmakers didn't include it in the final document).

Amazon, which is not involved in the Supreme Court case, collects sales taxes on direct purchases on its site but does not collect taxes for items sold on its platform by third-party venders, amounting to about half of total sales.

Should the court decide in favor of South Dakota, a number of scenarios are possible. However, this is not guaranteed. It's South Dakota's law that's now at the center of the case at the Supreme Court.

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It is also possible that Congress could finally take action. South Dakota recently determined "that the explosion in online sales changed the market dramatically" and subsequently "passed a law requiring all but the smallest retailers, including Internet companies, to collect taxes on the sales they make in the state, even if they had no physical presence there". However, Congress could simply change the federal laws related to sales taxes and nexus, which would essentially reverse the Supreme Court's decision. Instead, the state argues that a sales tax should be imposed on businesses who have an "economic presence" in a state. They could also do something in between, granting the states more authority while imposing a number of restrictions. Other states will likely continue to push challenges to Quill to the Supreme Court.

Further, states have additional actions to deploy in the event of a Wayfair win. "If you advertise in NY, even if you don't have that brick-and-mortar store, we're going to charge sales tax, '" Bartholomew said.

Q: What is the case for businesses that don't now collect sales taxes nationwide?

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The next step is to acquire the services and technologies they need to track, calculate and collect appropriate sales taxes in any state.

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