Supreme Court hears e-commerce sales tax case

The case before the court, South Dakota v. Wayfair, et al, concerns the constitutionality of a 2016 South Dakota law that requires out-of-state sellers exceeding $100,000 in sales or with 200 or more separate sales transactions in the state to collect and remit sales taxes. The state sued three major online retailers — Wayfair, Overstock and Newegg — for failing to comply.

The plaintiff is challenging the existing requirement that only retailers with a physical presence in a state — in the form of stores or warehouses — can be required to pay state sales taxes, as upheld in the previous Supreme Court ruling, in Quill Corp. v. North Dakota, from 1992.

The plaintiff’s case was presented by South Dakota Attorney General Marty Jackley, who told the justices: “There are two very significant consequences brought about by Quill: First, our states are losing massive sales tax revenues that we need for education, healthcare, and infrastructure. 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.”

Jennifer Platt, ICSC’s vice president of federal operations, attended the hearing and said there was something all sides could agree on. “Across the board, no matter what perspective, everyone expressed dismay that Congress did not act on this issue,” Platt said. “There was a sincere evaluation of whether Quill is a good precedent to uphold.”

Jackley faced tough questioning from the justices, notably Sonia Sotomayor, who expressed concerns that small businesses would face added costs if the court overturns the current Quill standard requiring a physical nexus for tax collection.

“I think there was more reluctance to adopt the position being advocated by the state of South Dakota than I expected,” said Brian Huben, a partner at Ballard Spahr LLP, a Los Angeles law firm, and ICSC's Southern California Government Relations chairman. “It could be a function of justices always probing the depths and merits of an advocate’s position but I was struck by the speed in which the court began questioning the solicitor general.”

Some Supreme Court justices suggested that Congress should act to correct the problem. Justice Elena Kagan called the issue a "very prominent" one of which Congress is aware.

Justices Neil Gorsuch, Clarence Thomas and Anthony Kennedy have previously signaled their willingness to rethink the court's ruling. At Tuesday’s hearing Gorsuch questioned whether the court should favor those who don’t collect tax over those who do, and Justice Ruth Bader Ginsburg seemed to feel similarly, suggesting the court's past decisions were "obsolete precedent."

Also of note was the point made by Gorsuch that the Colorado reporting standard should be the standard of burden, not the idea that there is no burden today.

Chief Justice John Roberts suggested that perhaps the problem "has peaked" and is "diminishing."

More than 60 amicus briefs have been filed in the case, including one submitted by ICSC in March in conjunction with the Investment Program Association, NAREIT, the National Association of Realtors, Real Estate Roundtable, National Multifamily Housing Council, NAIOP, the American Farm Bureau Federation and South Dakota Farm Bureau Federation.