You've likely seen by now that the U.S. Supreme Court has agreed to review a case that could have significant impact in the sales tax world.  Specifically, the Court is set to review a case that would require businesses to collect state and local sales tax regardless of their physical presence in a state. The total taxes amount to billions and the Court will be revisiting a 26-year-old case that has largely allowed the internet to be a tax-free zone.

If you have followed our blog, you constantly see various local jurisdictions increasing their local tax rate or attempting to apply sales tax to a broader set of products and services.  I believe the abundance of these local tax changes are an effort to offset the sales tax collections that have been lost as a result of increased online purchases where the seller is not required to collect sales tax.

Traditional retailers from several states have called for the highest Court to review the current tax laws as internet purchases encroach upon brick-and-mortar profits.  The Court has officially announced its intention to hear South Dakota's case against Wayfair.  Billions of dollars would have been collected in 2017 had retail transactions over the Internet been taxed.  Currently, the Quill ruling in 1992 has protected businesses with no physical presence in a state from collecting the sales tax.  It is this physical presence standard that is being challenged in the South Dakota case where the requirement to collect sales tax is based on an economic nexus standard rather than a physical nexus standard.

Companies like overstock.com, Wayfair.com, and Newegg.com are all pushing back against the efforts of state governments to recoup lost taxes as a decision in the states' favor could cost these online retailers a competitive advantage that currently precludes them from collecting sales tax.

While Amazon is not directly involved in this case, and even though Amazon does impose a sales tax in states where it is required, many of the items sold on Amazon's platform are done through third-party retailers who do not charge sales tax.  Consequently, these vendors and retailers are still in the crosshairs of the state and local governments should the Court decision land in South Dakota's favor.

The Court is poised to hear arguments in April with a decision expected some time during the summer.

Brian Greer

Written by Brian Greer