Sales Tax for Online Sales: An Update

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With retailers reporting huge online sales from Black Friday and Cyber Monday, now seems like a great time for an update on the online sales tax issue. In our recent article we mentioned that a group of online retailers that did not have a brick-and-mortar store in South Dakota filed suit against the state (South Dakota v. Wayfair) for passing a law which required online sellers  with total sales in the state of more than $100,000 or 200 transactions to collect sales taxes. The retailers claimed that South Dakota’s law was unconstitutional under Quill v. North Dakota, a 1992 Supreme Court decision that requires sellers to collect sales taxes only if the seller has a physical location in the state.

The online retailers prevailed when the South Dakota Supreme Court ruled that the state law is unconstitutional under Quill. South Dakota recently filed a petition for certiorari to the Supreme Court, hoping that the Court will agree to hear the issue as part of its 2018-2019 docket. As mentioned in our previous article, in 2015 Justice Kennedy stated that with the effects of technology on the state of retail, the Court should reexamine Quill. If Justice Kennedy’s feelings about Quill haven’t changed, then the Court will need three more Justices to grant the issue a writ of certiorari. Since South Dakota filed its petition, at least 35 state attorneys general have signed on to support the petition. In addition, several amicus briefs have been filed, including one by a group of tax professors and another by the National Retail Federation.

As holiday shopping kicks into high gear, states are zeroing in on the issue by estimating the amount of sales tax that could be collected. Some states estimate as much as $500 million over the next five years and tens of millions in one holiday season if Quill remains the standard. The legislation discussed in our previous article, the Market Place Fairness Act and the Remote Transactions Parity Act, which could address the issue legislatively, are still pending before the Senate and House, respectively. We will continue to track developments of the South Dakota petition as well as the related legislation and provide updates as events develop.

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