Options for governments after Supreme Court e-commerce ruling

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ST. LOUIS — State and local governments will have options for collecting sales taxes from e-commerce regardless of how the U.S. Supreme Court rules next month in a closely watched South Dakota case.

That was the message here from Craig Johnson, executive director of the Streamlined Sales Tax Governing Board Inc. at the Government Finance Officers Association annual convention.

Many state and local officials are expecting the high court to overturn its 1992 ruling in Quill Corp. v. North Dakota that upheld earlier rulings requiring the physical presence of a retailer before a government could require the collection of sales taxes.

The 1992 ruling, however, was made in connection with out-of-state catalog retailers before the internet marketplace existed.

The South Dakota case represents an opportunity for the court update its ruling in light of the role of e-commerce now plays.

South Dakota has no state income tax and relies significantly on sales tax revenue to operate state government, making it what many consider to be an ideal candidate for the court to consider.

The state is appealing a state court ruling in favor of e-commerce retailers Wayfair, Overstock and Newegg that invalidated a 2016 state law that requires e-commerce retailers to collect sales tax on behalf of the state if they had more than 200 transactions annually or $100,000 in sales.

The high court has several options, according to Lisa Soronen, executive director of the State and Local Legal Center who joined Johnson in the presentation.

The justices could set some sort of an economic nexus standard of their own as a replacement that might be as little as $1 in sales or even call the presence of a website to be a physical presence.

Or the court could simply overturn the South Dakota ruling, leaving it up to other states to set a standard. That sort of ruling might serve as an incentive for Congress to act.

Soronen said she’s confident at least four of the nine justices will vote to overturn Quill – Justices Clarence Thomas, Ruth Bader Ginsburg, Anthony Kennedy and Neil Gorsuch.

That leaves only one more vote needed for a majority.

Soronen said Chief Justice John Roberts could provide that margin, while Stephen Breyer, Samuel Alito and Elena Kagan also are possibilities.

Even if Quill is not overturned, Congress might act on longstanding proposed legislation or states could act legislatively.

Many lawmakers in Congress have deferred to the high court on the issue in the belief that helping state and local governments collect sales tax for e-commerce might be construed as a new tax rather than an enforcement measure.

Johnson said Pennsylvania and Washington already have so-called marketplace facilitator collection laws requiring major e-commerce websites to collect sales tax for third-party sales.

Those laws not only affect Amazon, which does 40% to 60% of its sales through third parties, but other e-commerce giants such as eBay, Walmart and Etsy.com.

Minnesota will join those two states in making a similar requirement effective July 1, 2019.

Johnson said he foresees more states enacting marketplace facilitator collection laws or imitating Colorado’s law which requires e-commerce companies to report to the state on people who have made a large amount of purchases over the course of a year. Colorado can use that data, in turn, to persuade residents to pay the sales tax on earlier purchases.

If the court does overturn Quill, Johnson predicted more states will join the Streamlined Sales and Use Tax Agreement.

Twenty-three states already are full members and Tennessee is an associate member.

Large states have not joined the SSUTA because the legislation pending in Congress would offer them a second option for collecting e-commerce sales tax that does not require as much simplification.

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E-Commerce Sales tax GFOA SCOTUS South Dakota