The United States Supreme Court has agreed to hear the state of South Dakota’s argument that a 26-year-old tax-related ruling be overturned, which could free state and local governments to collect billions in internet sales tax, according to a report today from Bloomberg. The 1992 ruling, from Quill v. North Dakota, centered on a mail-order business and inadvertently set a far-reaching precedent for e-commerce companies by only allowing states to collect sales tax from businesses with a “physical presence” in a given state. Critics of the ruling have long decried the clause by saying it makes no sense in the age of Amazon and internet e-commerce, and that it disadvantages brick-and-mortar retailers and state and local governments.
South Dakota passed a law two years ago with the intention of overturning the ruling by demanding retailers with more than $100,000 in annual sales pay a 4.5 percent tax on all sales. The state government then filed suit to have the case heard by the higher courts, in an effort to get the measure deemed constitutional by way of overturning Quill v. North Dakota. “States’ inability to effectively collect sales tax from internet sellers imposes crushing harm on state treasuries and brick-and-mortar retailers alike,” South Dakota argued in its appeal to the Supreme Court, which this week agreed to take up the case.
The Supreme Court’s decision, which isn’t expected to come down for quite some time, could have far-reaching implications on online businesses of all stripes. Prominent e-commerce companies like furniture seller Wayfair and consumer electronics seller Newegg, which collect sales tax in only certain states, have expressed opposition to having the ruling overturned, as it would increase prices and remove an advantage over physical retailers. Amazon, which long ago decided to start collecting sales tax when it started building fulfillment centers around the country, will also be affected. That’s because third-party sellers on Amazon are responsible for collecting sales tax and do not follow through, according to Bloomberg. An overturning may push Amazon to demand its sellers be more thorough in sales tax collection.