U.S. Supreme Court to hear sales tax case with major consequences for state budgets, consumers and retailers

The Wall Street Journal reports on a major development in sales tax policy.

The Supreme Court on Friday said it would consider whether states can broadly require online retailers to collect sales taxes even if they lack a physical presence in the state, taking a case that could have a major impact on online commerce.

The justices agreed to hear an appeal by the state of South Dakota, which has been pushing a test case with the goal of overturning a high-court precedent that limits states’ sales tax collections.

For the Washington Research Council, Emily Makings explains the implications for our state.

…the Court will hear South Dakota v. Wayfair, Inc. This is about whether states can require out-of-state retailers to collect sales taxes. In 1992, the Court held that states can only require businesses to collect sales and use taxes if they have a physical presence in a state. Since then, there have been many attempts to get Congress or the Court to act to allow states to require the collection of sales taxes on remote sales. (We wrote about the issue in this policy brief.)

Last year, the Legislature enacted EHB 2163, which made several tax changes. One of them requires remote sellers, referrers, and marketplace facilitators to either collect and remit sales taxes or comply with reporting requirements. The Department of Revenue estimates this will increase state general fund revenues by $340.5 million in 2017–19 and $695.5 million in 2019–21. As we noted in our report on the 2017–19 operating budget, these revenues aren’t a sure thing given the current Supreme Court precedent. That could change now that the Court is taking up the South Dakota case.

From the WSJ story:

A group of 35 other states urged the court to hear the case, saying the inability to require online merchants to collect sales tax was costing them billions of dollars and straining state budgets. Taxpayers are technically liable for the taxes even if an online retailer doesn’t impose them, but such direct collections by state taxing authorities are rare.


Also joining the push for Supreme Court review were brick-and-mortar retailers that say it undermines fair competition that they have to collect sales taxes but their online rivals don’t…

Current defendants in the South Dakota case are WayfairInc., Overstock.com Inc. and Newegg Inc. The companies argued the court should decline to review the case, saying the question of online sales-tax collection was a policy matter best left to Congress.

More coverage in Bloomberg Politics and the Associated Press. Arguments are expected to be heard in April with a decision coming in June.