The Supreme Court says states can force online shoppers to pay sales tax, clearing the way for major changes in the world of e-commerce.
Earlier today, the U.S. Supreme Court handed down its decision in South Dakota v. Wayfair. The case challenges South Dakota’s application of its sales tax to internet retailers who sell into South Dakota but have no property or employees in the state. At issue is the 1992 case, Quill Corp. v. North Dakota, which set the property or employees standard for sales taxes using the Court’s dormant commerce clause power to restrict state taxation of interstate commerce.
Justice Anthony Kennedy’s majority opinion states:
South Dakota’s tax system includes several features that appear designed to prevent discrimination against or undue burdens upon interstate commerce. First, the Act applies a safe harbor to those who transact only limited business in South Dakota. Second, the Act ensures that no obligation to remit the sales tax may be applied retroactively. Third, South Dakota is one of more than 20 States that have adopted the Streamlined Sales and Use Tax Agreement. This system standardizes taxes to reduce administrative and compliance costs: It requires a single, state-level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules. It also provides sellers access to sales tax administration software paid for by the State. Sellers who choose to use such software are immune from audit liability. Any remaining claims regarding the application of the Commerce Clause in the absence of Quill and Bellas Hess may be addressed in the first instance on remand.
Attention will now turn to Congress and the states. Congress has been deadlocked between alternate versions of federal solutions: the Remote Transactions Parity Act (RTPA) or Marketplace Fairness Act (MFA), which lets states collect if they agree to simplify their sales taxes, and a proposal from retiring Rep. Bob Goodlatte (R-VA) that would make the sales tax a business obligation rather than a consumer obligation, and have it collected based on the tax rate where the company is located but send the revenue to the jurisdiction where the customer is located.
Today’s decision will undoubtedly change how states look at these laws. However, this ruling is not a "blank check" for states. The Court specifically noted that South Dakota’s law, and its tax laws generally, minimizes the burden on interstate commerce. Other states will have to draft their laws accordingly.