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How a Supreme Court case could affect your online purchases

17 April 2018
How a Supreme Court case could affect your online purchases

Tomorrow the Supreme Court will take up a case to overturn a 1990s decision (the Quill case) that prohibited states from collecting sales tax from online sales where the seller does not have a physical presence in the state.

Currently Amazon and some others collect sales tax on all their direct sales but do not collect taxes on sales from other vendors that use the Amazon site. Ending the ban could bring billions of dollars in new revenue to the states. This case could upend the long-standing ruling, instead installing a minimum sales threshold in a state as the defacto benchmark for collecting sales tax there. Only by doing so, can they eliminate the possibility of finding themselves faced with the onerous task of spending hundreds of hours manually calculating sales tax and filling out returns for multiple states at the same time.

Big retailers like Amazon and Walmart collect sales tax on all online sales.

Q: What is the case for businesses that don't now collect sales taxes nationwide?

It will be interesting to see what the Supreme Court does.

The Quill decision, however, occurred before the explosion of ecommerce, which has enabled online retailers to easily sell into states in which they have no physical presence. The law directly challenged the Quill decision, declaring an "urgent need for the Supreme Court of the United States to reconsider" the physical presence precedent. Several states have actually anticipated a South Dakota victory, adopting similar laws and hoping that a South Dakota win means their laws will automatically become legal.

At issue: a South Dakota law that essentially changes the physical presence threshold to a company's economic presence.

"I think you're going to see a flood not only of demands for ongoing tax collection but retroactive audits", said Andy Pincus, a Washington lawyer who filed a brief on behalf of EBay and a group of small businesses that oppose the states. "Amazon.com did not begin selling books out of Jeff Bezos's garage until July 1995, and Bezos himself described Amazon as a pipsqueak in comparison to Barnes & Noble". The company says it prefers a federal solution in Congress that would level the playing field between brick-and-mortar and online sellers (presumably one that avoids a state-by-state patchwork approach).

Forcing internet retailers to pay sales taxes everywhere would stifle competition and make it much harder for start-ups to get into the market, the companies say. But numerous small retailers sell through large websites like Amazon. That leaves out only Alaska, Delaware, Montana, New Hampshire and Oregon. Should a change happen, they will be burdened by having to put systems in place to collect sales tax, Peterson said. The U.S. Accounting Office estimates that governments lost out on $13.4 billion in tax revenue previous year as a result of the current law.

Amazon, which President Donald Trump accused of underpaying taxes, isn't involved in the Supreme Court case.