Fallout continues from U.S. Supreme Court “Wayfair decision” on internet sales tax collections: Looking to Congress for a response

Route Fifty reports that critics of the U.S. Supreme Court decision on online sales taxes are turning to Congress to rein in the states.

Republican lawmakers left open the possibility on Tuesday that Congress could take action to legislate around a recent U.S. Supreme Court decision that paves the way for states to collect greater sales taxes from internet retailers.

But there are no signs yet that any legislation is gaining serious traction on Capitol Hill.

Tuesday’s discussion unfolded as the House Judiciary Committee convened to consider the ramifications of the June ruling in South Dakota v. Wayfair, Inc., which overturned a legal precedent that blocked states from gathering sales taxes from out-of-state online vendors.

We reported previously that the Wayfair decision would create an initial period of uncertainty.

The recent U.S. Supreme Court decision allowing states to require remote sellers to collect sales taxes has created new avenues of uncertainty requiring legislative clarification…

Last week’s Congressional hearing, chaired by U.S. Rep. Bob Goodlatte, a Virginia Republican, opened a window to some concerns.

“The court’s close and incomplete decision in Wayfair has the potential to unleash chaos for consumers and remote sellers, particularly small business sellers,” [Goodlatte] said. Goodlatte went on to say that the possibility states will seek to apply the tax retroactively “remains a real threat.” 

Earlier this month we called your attention to a good Q&A from the Tax Foundation on the impact of Wayfair. Tax Foundation  This response seems prescient.

How will this affect my state? What’s next for states? For Congress? For the courts?

Within 48 hours of the decision, legislators from nearly every state contacted the Tax Foundation to ask what changes they should make to their sales tax to be able to collect tax on internet purchases. Some states may adopt laws that emulate South Dakota’s in every respect. Other states may adopt laws that adopt only some of the features, and that would likely be subject to further litigation. Some states may not act until their next regular legislative session, while others may never act.

Congress may act to establish a minimum standard for states that wish to collect sales tax on interstate sales. A federal standard would create certainty for sellers and consumers and ensure that every state meets certain simplification guidelines. Until then, we’ll likely see more states seek the same authority as South Dakota, with some encountering legal challenges.

We will continue to watch as the issue works its way through Congress and the state legislatures.