Last week, the Supreme Court announced its decision to review a case during its upcoming session that could have a tremendous impact on online retailing in the U.S. Beyond that, the National Retail Federation, appears to be at odds with some retailers—specifically those named in the case—over which way it believes the court should rule.
The case hails from the South Dakota court system and pits a number of online retailers against the state, which is seeking to require those online sellers to collect the same sales tax that local stores are required to. Currently, based on a Supreme Court ruling in 1992, online retailers only have to collect state sales tax in states in which they have a physical presence—be it a store, warehouse, distribution center, etc. Online retailers named in the case include Overstock, Wayfair Inc., and Newegg Inc., the latter of which is an online-based consumer electronics retailer.
The previous Supreme Court ruling—Quill Corp v. North Dakota—established the grounds for online retailers collecting state sales tax only in jurisdictions in which they have a physical presence. At the time, the court cited state sales tax laws that were too complicated for retailers to know how much to collect unless they were physically present in the customer’s state.
The online retailers named in the new suit are asking the Court to follow precedent while the suitors—and the NRF—believe the laws are antiquated and new precedent should be set.
“Retail is a dynamic industry that’s rapidly transforming,” NRF President and CEO Matthew Shay said. “Unfortunately, antiquated sales tax collection rules have resulted in an uneven playing field that’s making it harder for Main Street retailers to compete in today’s digital economy. This is a basic question about fairness, which all of our members deserve whether they’re selling in stores or online.”
In a statement emailed to Dealerscope, Jonathan Johnson, president of Medici Ventures, an Overstock subsidiary, said, “We’re confident that as the Supreme Court delves deeper into the issue, it will confirm that the doctrine stated in Quill Corp. v. North Dakota is clear and fair on this matter. … States do not have power to conscript individuals or organizations that do not have a physical presence within their state to do the state’s job of collecting sales tax. It’s a straightforward notion. And, disregard for the precedent would have severe consequences for future businesses and individuals.”
It’s unique to see the NRF come out in stark contrast to the opinions of other retailers, but it’s clear that the association has a softer spot in its heart for the brick and mortar retailer—which makes up a vast majority of its membership—than it does for ecommerce websites.
In a friend-of-the-court brief filed in November, NRF’s Shay said the idea that state sales tax laws were too complex has been made obsolete by present-day software and other systems that automate the task, many of which are free to retailers. Beyond asking the Supreme Court to overturn its previous decision, the NRF has called on Congress to address the issue through federal legislation.
“The fact that the Supreme Court has decided to reconsider its outdated ruling is encouraging, and we are hopeful it will lead to a positive outcome that reflects the realities of 21st century commerce,” Shay said. “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.”