Andrea
Supreme Court divided on whether sales tax obligations should be imposed on online sales
Andrea Martinez 20 Apr 2018

Supreme Court divided on whether sales tax obligations should be imposed on online sales

After the recent Supreme Court hearing (on Tuesday, April 17, 2018) in the South Dakota v. Wayfair case, the online sales tax collection debate seems far from ending.

Despite an hour of oral arguments on Tuesday, it was still unclear whether a majority of the court is ready to overturn a 26-year-old tax-related ruling, or whether the issue of sales tax on internet retail is best left to Congress.

What revived a decades-old debate about online sales tax collection was the law that South Dakota passed in 2016 “requiring retailers with more than $100,000 in annual sales or 200 transactions in the state to pay a 4.5 percent tax”. The law was meant to make the court reconsider its decision in Quill v. North Dakota – the case that prevents states from collecting sales tax from out-of-state retailers.

At Tuesday’s argument, South Dakota Attorney General Marty J. Jackley argued there was good reason to abandon the Quill decision, despite the court’s disinclination to overturn its own precedents.

Jackley gave the court two reasons for overturning the Quill ruling. He said, “First, our states are losing massive sales tax revenue that we need for education, health care and infrastructure”. “Second, our small businesses on Main Street are being harmed because of the unlevel playing field created by Quill, where out-of-state remote sellers are given a price advantage.”

However, some justices expressed concerns as to how imposing online sales tax would be burdensome for small businesses that sell goods online.

To begin with Jackley’s statement was strongly disputed by George S. Isaacson, a lawyer representing three web retailers – who were sued for not complying with the South Dakota law.

Isaacson told the court a ruling in favor of online sales taxes would impose burdens on small online merchants. He further said that a national solution to the issue should come from Congress instead of the Supreme Court.

Even Justice Sonia Sotomayor added that Congress, and not the Supreme Court, was the right forum to resolve the matter.

“Is there anything we can do to give Congress a signal that it should act more affirmatively in this area?” asked Justice Sonia Sotomayor. To this, Chief Justice John G. Roberts Jr. said that “it would be very strange for us to tell Congress it ought to do something in any particular area.”

And Both Justice Roberts and Justice Elena Kagan said that the fact Congress has not chosen to do something about the issue is an indication that it was contented with the current system.

In fact, Chief Justice Roberts said that the e-commerce market may already be addressing the issue. “Several large retailers — led by Amazon.com — are collecting sales tax even in places where they do not have a physical presence”, he said.

But three members of the Supreme Court — Anthony M. Kennedy, Clarence Thomas and Neil M. Gorsuch — indicated that they were ready to reconsider the Quill decision. Also, Justice Ruth Bader Ginsburg seemed ready to reconsider the earlier ruling.

“Why should the court which created the doctrine say: ‘Well, we’ll let Congress fix up what turns out to be our obsolete precedent?’ ”, said Ginsburg.

Anthony M. Kennedy, while addressing the issue said, “The assumption of many of these questions is that Quill is incorrect, but that doesn’t make any difference”. He further added, “And I’m suggesting that it does make a difference when Congress acts” that the court has made the proper constitutional decision.

Justice Gorsuch, however, said that “there are a lot of retailers that have to comply with lots of different jurisdictions’ rules”, and so, he cannot understand why the court should support one business model over another.

Lastly, Justice Stephen G. Breyer said conflicting statements on the amount of sales tax revenue lost and on the cost to retailers complying with state sales tax rules made the case difficult.

“When I read your briefs, I thought, ‘Absolutely right,’ ” Breyer told Attorney General Marty J. Jackley. He further said, “And then I read through the other briefs, and I thought, ‘Absolutely right.’ And you cannot both be absolutely right.”

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