As Dealerscope reported earlier this year, the Supreme Court announced it would review a 25-year—old case that has the potential to dramatically alter ecommerce here in the United States. South Dakota v. Wayfair, which will go before the Supreme Court justices on Tuesday, calls into question a 1992 court ruling that outlines how states and other localities can tax goods sold outside of their borders.
Initially intended to regulate catalog-based sellers, the ruling has been challenged again and again by states seeking to claim their fair shake of online sales.
The precedent set by the 1992 case—Quill Corp. v. North Dakota—established that states could only collect sales tax from a retailer with an established physical presence within their boundaries. At the time, the court cited state sales tax laws that were too complicated for retailers to know how much to collect unless they had a physical presence in that specific state.
Times and technology have changed. Software does exist that would allow online retailers to easily automate the state and local sales tax collections process. But online-only merchants—especially the large number of independently-owned businesses on sites like Etsy and Ebay—worry that this is more of a cash grab by state and local governments.
Retailers like Amazon, Walmart, Target, Apple and other major companies do currently collect sales tax via their ecommerce channels, so that’s not what this case is after. Rather, the types of businesses in question include major ecommerce-only businesses like Wayfair, Newegg (#16 on our Top 101 Consumer Electronics Retailers list), and Overstock.com—all of which are cited in South Dakota’s suit.
Additionally, independent businesses on websites like Etsy and Ebay would be included in a rewritten sales tax law, as well as third party merchants that operate in Amazon’s global marketplace, which totaled nearly two-thirds of the company’s gross merchandise volume at $313.4 billion.
“Today's online giants do not need or deserve the special tax treatment that the Court gave mail order catalog companies a half century ago,” Deborah White, General Counsel for the Retail Industry Leaders Association, said in a statement last month. “These online companies have taken advantage of a bygone decision in order to evade the tax collection duties that their brick and mortar competitors perform every day.”
Online retailers are omnipresent today – on consumers' smart phones, laptops, tablets, and computers – in a way that was inconceivable in 1967 or 199,” she continued. “The 'physical presence' rule of those eras was enunciated by the Court long before virtual presence was even imaginable," added White. "The 'economic presence' test set forth in this case is a far better yardstick for State authority over absentee retailers and will ensure that large online retailers are playing by the same rules as their brick and mortar counterparts.”
Those opposed to a re-write of the law warn that the cost to small businesses could be too much to bear. “For small businesses on tight margins, these costs are going to be fatal in many cases," Andy Pincus, who filed a brief on behalf of eBay and small businesses that use its platform, told the Associated Press.
According to the Government Accountability Office, online marketplaces could have collected between $3.9 billion and $6.2 billion in state sales tax. However, GAO also estimated that untaxed online sales would make up just 2 to 4 percent of state and local sales tax revenue. State and local sales tax is already collected by between 87 and 96 percent of the top 100 online retailers, according to the agency.
A decision on the case by the U.S. Supreme Court is expected to be announced in June.