Supreme Court considers whether states should have power to tax all online sales

An already-diminished perk of online shopping — avoiding the payment of sales tax — is in danger of extinction at the Supreme Court this week.

The justices will consider deleting a 26-year-old precedent and uploading a new operating system for states and local governments, who say they have been improperly barred from requiring online retailers to send them billions of dollars in sales-tax revenue.

Led by South Dakota, the states ask the court to overturn its 1992 decision in Quill v. North Dakota, which said retailers can be forced to collect taxes only in states where the company has a “physical presence.”

The case requires the court to consider whether a decision made in the era of mail-order catalogues still makes sense in a time of one-click shopping, when a website can be more appealing and convenient.

Although Internet giant is not a party to the case — the company now collects sales tax in all 45 states that have one, as well as the District — President Trump’s recent criticism of the company’s founder, Jeffrey P. Bezos, has cast a political sheen on the issue. Bezos also owns The Washington Post.

The Trump administration has sided with states that want the taxing power, saying a “virtual” presence in the state is equivalent to a physical one.

Three of the five justices required to overturn Quill have indicated unhappiness with the decision. Justice Anthony M. Kennedy in 2015 said the “legal system should find an appropriate case” for the court to reexamine the decision, which he said is “inflicting extreme harm and unfairness on the states.”
A Government Accountability Office audit said states missed out on about $13.7 billion in 2017.

No wonder Washington lawyer Andrew Pincus, representing eBay, said one of the toughest preconceptions that online retailers must overcome is “that this case is sort of a done deal.”

In fact, he said, as the percentage of large retailers collecting sales tax continues to grow, “the numbers are only going to get better from the states’ perspective,” without disturbing the protections Quill provides for smaller retailers.

Any change in the status quo should come not from the Supreme Court but from Congress, the retailers argue, which could implement national rules rather than open up the companies to having to deal with the specific requirements of what they say are 12,000 taxing jurisdictions nationwide.

But Congress has not acted. And the e-commerce environment has continued to evolve.

Although in the past Americans may have purchased online to avoid paying sales tax, they are increasingly shopping online to get items quickly and without having to leave the house, said Hayes Holdernes
s, a professor at the University of Richmond School of Law who focuses on state and local taxation.
“The convenience of online shopping has come to outweigh the idea that I’m going to buy something online to get it sales-tax-free,” he said. “The data we have show that most people don’t actually pay attention to the amount of sales tax that is being collected. They look at the final cost, of course, but shoppers are becoming more comfortable with the idea that these taxes should be collected and paid.”

Technically, consumers owe the tax no matter how they make purchases. But it’s practically impossible for the state to get the tax revenue unless the company collects the money at the time of sale.

South Dakota, which has no income tax, is especially dependent on sales tax. And after Kennedy’s request for a case — contained in a concurring opinion in a related tax case — the state “answered the call,” it said.

It passed a law requiring retailers with more than $100,000 in annual sales or more than 200 transactions in the state to pay a 4.5 percent tax on purchases. It sued three large online retailers — Wayfair, Overstock and Newegg — for not complying.

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