Today the U.S. Supreme Court has agreed to hear the case of South Dakota v. Wayfair Inc., paving the way for a pivotal decision in the years-long debate over how to apply sales taxes to online retail activity.
Under current Supreme Court precedent (Quill v. North Dakota), online retailers are not required to collect sales taxes unless they have a physical presence in a state. Traditional brick-and-mortar retailers that have to collect sales taxes feel they’re at a competitive disadvantage, and states are potentially losing out on billions of dollars in revenue annually.
But many states are currently ignoring the Quill decision, and absent the Court’s action—or legislation from Congress—this will result in a complex and indefensible patchwork of laws harming interstate commerce.
As we explained in a recent amicus brief urging the Court to take the case, South Dakota’s sales tax is uniquely well-structured, as it is one of a few states that taxes most all final goods and services. The state is also one of 23 states to join the Streamlined Sales and Use Tax Agreement, a voluntary governing board that has worked to simplify and standardize their sales tax rules. Unfortunately, many other states have much more complex sales tax systems.
We believe that South Dakota’s law complies with the Dormant Commerce Clause. However, other states seeking similar authority could expose online retail to a flurry of problematic state tax laws. This represents an opportunity for the Supreme Court to issue much-needed guidance on this issue while reasserting necessary limits on state taxing authority.