U.S. Supreme Court to take up online sales tax issue

On January 12, the U.S. Supreme Court agreed to hear a case about whether states can require out-of-state online retailers to collect their sales taxes. In agreeing to hear the case, South Dakota v. Wayfair, the court will revisit a 1992 decision in which it ruled that states could only require remote sellers to collect their sales taxes if the business had a physical presence in the state. The case before the Supreme Court involves a South Dakota law enacted in 2016 that would allow the state to require out-of-state online retailers with a significant economic connection to the state to collect its sales taxes.

State and local governments could have collected up to $13 billion more in 2017 if they’d been allowed to require sales tax payments from online merchants and other remote sellers, according to a report from the Government Accountability Office, Congress’s nonpartisan audit and research agency.

State and local governments have been pushing to collect sales taxes from internet purchases in recent years, as the growth of e-commerce has made it harder for governments to reach their revenue targets. Because of the recent gridlock in Congress, states sought to use the courts to try to get the 1992 Supreme Court ruling overturned. Justice Anthony Kennedy said in a 2015 opinion that he wanted the court to take another look at the issue.

Supporters of South Dakota's case include groups representing state and local governments and brick-and-mortar retailers. Online retailers, such as, Wayfair Inc., Overstock.com Inc. and Newegg Inc. are opposing South Dakota in the court fight. The case will also affect Amazon.com Inc., though the biggest online retailer isn’t directly involved. When selling its own inventory, Amazon charges sales tax in every state that imposes one, but about half of its sales involve goods owned by third-party merchants. For those items, the company says it’s up to the sellers to collect any taxes, and many don’t.

The court will hear arguments in April with a ruling by the end of its nine-month term in late June.