Thursday, June 21, 2018
After 26 years, the Supreme Court overruled its decision in Quill Corporation v. North Dakota. At the time, the justices decided the U.S. Constitution prohibits states from forcing businesses to collect sales taxes unless those businesses have a substantial connection to the state, such as a physical location. In a 5 to 4 ruling handed down June 21, 2018, the court ruled in favor of the plaintiff in South Dakota v. Wayfair Inc., et al., which means Internet retailers can now be required to collect sales taxes in states where they have no physical presence.
Writing for the majority, Justice Anthony M. Kennedy stated, "Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers. Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own." The other justices joining him were Samuel A. Alito Jr., Ruth Bader Ginsburg, Neil M. Gorsuch and Clarece Thomas.
Chief Justice John Roberts, while not in favor of the 1992 Quill decision, felt the matter would be better addressed by Congress. "E-commerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule," he wrote. "Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress." Justices Stephen G. Breyer, Elena Kagan and Sonia Sotomayor also dissented.
Roberts also said, "The burden will fall disproportionately on small businesses. The court's decision today will surely have the effect of dampening opportunities for commerce in a broad range of new markets."
The 1992 decision came at a time when the Internet was not the force it is today. Justice Kennedy stated that back then, mail order sales totaled only $180 million; in 2017, he added, "e-commerce retail sales alone were estimated at $453.5 billion."
Amazon has already been collecting sales tax in states that charge it, whether Amazon has a physical presence there or not. The behemoth has not, however, been collecting sales tax for merchants participating in Amazon Marketplace.
In the suit decided today, South Dakota sought to collect taxes from online retailers with more than $100,000 in annual sales or 200 transactions in the state. While the South Dakota law provides exemptions to the smallest retailers, today's ruling may open the door for states seeking to collect sales taxes from a larger group of sellers, including small businesses.
National Retail Federation President and CEO Matthew Shay responded to the ruling, stating, "Retailers have been waiting for this day for more than two decades. The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it's time for outdated sales tax policies to change as well. This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both."
The NRF had argued in a 2017 friend of the court brief that the Quill Corp. decision was outdated and that sales tax collection is no longer a burden for online sellers due to changes in technology. In particular, the NRF mentioned a variety of free or low-cost software now available to automatically collect sales tax owed.
The full impact of the ruling is unknown. Shay shared his views on next steps. "While today's decision is a major victory, there's still work to be done," he said. "Congress must now follow the court's lead and pass legislation implementing uniform national rules that provide consistency and clarity for retailers across the country."
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