Supreme Court Considers Changing Internet Sales Tax Policy

Posted on May 4, 2018

The Supreme Court is expected to issue a decision by the end of June in South Dakota v. Wayfair, Inc., et al, a case that could change how sales taxes are collected on Internet purchases.

Two years ago, South Dakota passed a law that would require out-of-state companies to pay sales taxes if they sold more than $100,000 worth of goods or made 200 separate sales transactions in the state. The law was designed as a direct challenge to the Supreme Court’s 1992 ruling in Quill Corp. v. North Dakota, which blocked states from collecting sales taxes from Internet retailers if those retailers don’t have a store, warehouse or sales staff physically present in the state.

NAIOP supports the collection of existing sales and use taxes from online retailers that are already owed to state and local governments. Not doing so puts brick-and-mortar retailers at a disadvantage to out-of-state vendors whose purchasers can avoid taxes.

NAIOP, along with several other real estate organizations, submitted an amicus curiae brief arguing that the Quill decision harms brick-and-mortar retailers. In addition, without a mechanism that requires the vendors to collect taxes owed, states will continue to lose billions of dollars each year. Budget shortfalls are often precursors to increases in property taxes.

South Dakota Attorney General Marty Jackley made that case to the court. “First, our states are losing massive sales tax revenues that we need for education, health care, and infrastructure,” he said in oral arguments. “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.”

Proponents of maintaining the status quo argue that it would be too complicated for Internet sellers to collect taxes in every jurisdiction. There were an estimated 6,000 taxing jurisdictions at the time of the Quill ruling in 1992, and that’s since doubled to roughly 12,000 today.

Lawyers for the Trump administration argued in favor of South Dakota’s position. As Deputy U.S. Solicitor General Malcolm Stewart argued, it’s also possible that Congress can act to change the tax law. But that seems unlikely until after the Court rules.

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