The National Retail Federation today filed a brief urging the U.S. Supreme Court to take up a South Dakota case on whether online sellers can be required to collect sales tax the same as local stores, saying the court’s landmark 1992 ruling on the issue is out of date and that collection is no longer the burden it might once have been.
“One of NRF’s top priorities is to ensure that all of our members are treated fairly and equitably when it comes to sales tax collection,” NRF Senior Vice President and General Counsel Stephanie Martz said. “The current playing field is uneven and dependent on antiquated ideas about in-state and out-of-state commerce, and even the technology involved. We are hopeful that the court will agree to review this critical issue and replace its catalog-age ruling with one that reflects the realities of the internet age.”
NRF’s friend-of-the-court brief was filed in an appeal brought by the state of South Dakota. The state is asking the justices to overturn a state Supreme Court ruling against a 2016 state law requiring online merchants with more than $100,000 in sales or 200 transactions with in-state residents to collect sales tax.
The state Supreme Court said the state cannot require out-of-state sellers to collect sales tax, citing the U.S. Supreme Court’s 1992 Quill Corp. v. North Dakota decision. In that case, the justices held that online sellers can only be required to collect sales tax in states where they have a physical presence such as a store, office or warehouse.
Part of the U.S. Supreme court’s rationale in 1992 was that there are more than 7,000 state and local jurisdictions across the country with sales taxes, and that the regulations are too complex for a seller to know what to charge unless they do business locally.
In today’s brief, NRF argued that technology has made that concern obsolete, citing a wide variety of software available to automatically calculate the sales tax owed, much of which is available free or at low cost. Many online sellers already collect sales tax from customers in multiple states, either voluntarily or because they have a physical presence that requires them to do so, NRF said.
“Given the ubiquity of affordable products that help businesses calculate, collect and remit sales and use taxes, there is little to no burden imposed on remote sellers,” the brief said. “Technology has simply eroded those distinctions.”
“The burdens associated with state sales tax collection in the mail-order catalog context simply are not present in today’s internet sales environment,” the brief said.
Practicality of collection aside, NRF argued that the current system is unfair.
“Quill is preventing free and fair competition among retailers, which is harming all businesses in the industry,” NRF said. “Rather than protecting out-of-state retailers from overly burdensome state sales and use tax collection requirements, Quill’s physical presence test operates as an unfair advantage for online business vis-à-vis bricks-and-mortar stores. Because of ecommerce’s dramatic expansion, this discrepancy in tax treatment has become an issue of vital importance for all retailers.”
NRF said even online sellers who currently benefit from the Quill decision are at risk because an increasing number of state court rulings on sales tax in recent years could leave some owing substantial back taxes and penalties.
In addition to the case before the Supreme Court, NRF is continuing to support legislation in Congress that would allow states to require out-of-state sellers to collect sales tax. Even if the Supreme Court were to allow that, NRF believes federal legislation is necessary to spell out details on how collection would take place rather than leaving it to each of the states to interpret the court’s ruling. NRF supports the Remote Transactions Parity Act, a House bill that would give states collection authority while also providing protection for small businesses from any potential compliance burden.
The South Dakota case comes two years after Justice Anthony Kennedy said that the U.S. Supreme Court made a mistake in Quill by relying on an outdated precedent on physical presence. Kennedy invited opponents of the decision to bring a new case that would allow the court to correct its mistake.