Finance

Supreme Court to hear online sales tax case

The Supreme Court on Friday agreed to hear a case about whether states can require out-of-state online retailers to collect their sales taxes.

In agreeing to hear the case, South Dakota v. Wayfair, the court will revisit a 1992 decision in which it ruled that states could only require remote sellers to collect their sales taxes if the business had a physical presence in the state.

State and local governments have been pushing for a greater ability to collect sales taxes from internet purchases in recent years, as the growth of e-commerce has made it harder for governments to reach their revenue targets.

The Senate passed bipartisan legislation in 2013 that would allow states to require out-of-state businesses to collect their sales taxes if the states simplified their sales tax laws.

Similar legislation was introduced last year with bipartisan support, but the effort has stalled in Congress because House Judiciary Committee Chairman Bob Goodlatte (R-Va.) has wanted to take a different approach on the issue.

Amid gridlock in Congress, states sought to use the courts to try to get the 1992 Supreme Court ruling overturned. Justice Anthony Kennedy said in a 2015 opinion that he wanted the court to take another look at the issue.

The case before the Supreme Court involves a South Dakota law enacted in 2016 that would allow the state to require out-of-state online retailers with a significant economic connection to the state to collect its sales taxes.

Supporters of South Dakota's case include groups representing state and local governments and brick-and-mortar retailers. 

"The Court's decision to grant South Dakota's petition is an important signal for retailers that invest in storefronts and jobs in local communities," said Deborah White, general counsel and retail litigation center president for the Retail Industry Leaders Association.

But some online businesses and lawmakers think that the 1992 decision should be upheld. A group of lawmakers that included Goodlatte and Senate Finance Committee ranking member Ron Wyden (D-Ore.) had encouraged the Supreme Court not to hear the case, saying that the online sales tax issue should be left up to Congress to address. 

Sen. Jeanne Shaheen (D-N.H.), the top Democrat on the Senate Small Business and Entrepreneurship Committee, said she hopes the Supreme Court sticks to its precedent. New Hampshire does not have a sales tax.

"A reversal by the Court would be especially damaging to New Hampshire where our small businesses have no experience collecting sales taxes and should not be forced to become tax collectors for other states," she said.

Meanwhile, Rep. Kristi Noem (R-S.D.), lead sponsor of a House bill similar to the one the Senate passed in 2013, said that the Supreme Court's decision to take up the South Dakota case heightens the urgency for congressional action.

"If the Supreme Court rules in South Dakota's favor, it could become a marketplace free-for-all. A South Dakota small business, for instance, could be forced to comply with 1,000 different tax structures nationwide without the tools necessary to do so," she said. "My legislation provides a necessary fix."

- Updated at 4:38 p.m.

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