Online Sales Tax Challenge Headed to Supreme Court

ARLINGTON , Va., Oct. 3, 2017 /PRNewswire-USNewswire/ — Twenty-five years ago, in 1992, the United States Supreme Court ruled in Quill Corp v. North Dakota that a state could not require out-of-state retailers to collect the taxes owed on sales to consumers within its borders, unless the retailer also had a physical location in the state. Quill Corp was a catalog retailer and the Court reasoned that calculating and remitting sales taxes for jurisdictions across the country was too burdensome for catalog retailers selling their wares to consumers in multiple locations.

But this was well before the Internet Revolution.  To put Quill in context: Quill was decided roughly three years before Jeff Bezos quit his job on Wall Street to sell books out of a garage in Seattle, before American households first heard “You’ve got Mail” on their home computers, and before virtually any American—at least those without a degree from MIT—knew what the Internet was. 

Katie Couric and Bryant Gumbel proved that point in 1994.

Although the Court’s 1992 decision was only intended to help catalog sellers with what was an administrative burden at the time, it ultimately became an e-commerce loophole as the World Wide Web took hold and e-commerce was born.  Practically speaking, Quill enabled online retailers like Amazon to begin selling products with a commercial advantage because they were excused from collecting the sales tax that most consumers do not know is already due and that brick and mortar retailers collect on behalf of the state every day.  In the twenty-five years since the Quill decision, online commerce has reached proportions that were unimaginable in 1992 and resulted in unintended economic consequences for state governments and local retailers alike. 

Retailers have appealed to Congress for more than a decade to pass legislation to end the competitive advantage the Quill rule gives growing e-commerce giants over brick and mortar stores, but to no avail. Yesterday, though, South Dakota has asked the U.S. Supreme Court to take a case that will give the Court a chance to revisit its outdated decision and level the sales tax playing field for all retailers. 

“South Dakota has brought a well-designed challenge to Quill that respects the sovereignty of the U.S. Supreme Court and asks the Court to reconsider its decision in light of the sweeping advances in technology that the Court could not possibly have foreseen when it issued its decision 25 years ago,” said Retail Litigation Center President Deborah White.

Yesterday’s petition for certiorari stems from a statute passed overwhelmingly by the South Dakota Legislature and signed by Governor Dennis Daugaard in 2016.  South Dakota’s law requires only those out-of-state retailers that transact more than $100,000 of business in the state or conduct more than 200 sales in any given year to collect and remit the sales taxes that are due.  It, thus, provides a “safe harbor” for small online retailers (despite the fact that even the smallest local shop is required to collect and remit taxes).

The law was signed roughly one year after U.S. Supreme Court Justice Anthony Kennedy recognized in his concurring opinion in DMA v. Brohl that, “[t]he Internet has caused far-reaching systemic and structural changes in the economy” so that “a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the word.”  Noting the significant economic harms that were befalling state treasuries and local retailers, Justice Kennedy said that “it is unwise [for the US Supreme Court] to delay any longer a reconsideration of the Court’s holding in Quill” and asked the “legal system [to] find an appropriate case for this Court to reexamine Quill.” South Dakota has done just that.

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