The US Supreme Court seems divided over sales tax on online purchases

* Should online retailers have to collect sales taxes in
states where they have no physical presence?

BILLIONS of dollars and long-standing interstate e-commerce
rules are at stake in a case that came before the justices on April
17th. The case revisits an old Supreme Court rule that retailers
shipping goods to states where they have no physical presence
cannot be forced to collect sales tax from their customers. This
standard is outdated, South Dakota’s attorney-general told the
justices, and deprives states of “massive sales tax revenues that
we need for education, healthcare and infrastructure”.

The conflict in South Dakota v Wayfair
Inc arose in 2016 when the Midwestern state noticed that
more of its residents were shopping online. In defiance of a
quarter-century-old Supreme Court precedent, South Dakota tried to
shore up its declining revenues by imposing sales-tax collection on
far-flung stores doing more than $100,000 of business, or
conducting more than 200 transactions, in the state.

When the conflict hit the lower courts, South Dakota’s law was
struck down as a violation of the constitution’s Commerce Clause in
line with Quill v North Dakota, a 1992 ruling. But the state pinned
its hopes on Justice Anthony Kennedy’s comment in 2015 that Quill
was “doubtful” and ripe for reconsideration. “[D]ramatic
technological and social changes” in America’s economy, he wrote,
along with “startling” state budget shortfalls, cast the
Quill-mandated sales-tax regime in a less appealing light.

It would take five justices to overrule Quill and permit states
to force out-of-state retailers to step up and collect tax. Going
into the hearing, conservative Justices Neil Gorsuch, Clarence
Thomas and Kennedy all seemed inclined to do that. The oral
argument added a surprise fourth justice to that list: Ruth Bader
Ginsburg, the court’s fiercest liberal. In her questioning of
George Isaacson, the lawyer for several online stores including
Wayfair, a homewares company, she repeatedly called Quill
“obsolete”. Requiring an “out-of-state seller to collect tax on
goods shipped in-state” is “equalising sellers”, she said.

In response, Mr Isaacson said the Commerce Clause seeks to
ensure a “single national marketplace that is free and accessible
to all participants”. When the court first weighed in on the
question in 1967, America had 2300 different sales-tax
jurisdictions. That number rose to 6000 by the time Quill was
decided and stands at over 12,000 today. So any store selling wares
over the web would face the onerous task of calculating various
items’ precise tax rates for countless addresses across the
country. Smaller retailers may not be up to the task.

Exactly how burdensome and expensive the accounting might be is
a matter of dispute. Justice Sonia Sotomayor pointed to one brief
claiming the cost would be as high as $250,000; the lawyer for
South Dakota said it would be closer to “$12 a month for 30
transactions”. Online software companies filed a
friend-of-the-court brief touting services like TaxCloud and
WooCommerce that might do the job for free—but when Wayfair and the
other retailers tested these websites, they quickly found them
“rife with errors”.

These and other conflicting claims seemed to befuddle Justice
Stephen Breyer, who may hold the key vote. “When I read your
briefs, I thought absolutely right”, he told the lawyer for South
Dakota. “And then I read through the other briefs, and I thought,
absolutely right. And you cannot both be absolutely right.”

The justices also pointed to disparate predictions of how much
states stand to gain if the court abandons Quill. South Dakota says
it would reap another $50m in tax revenues through its 2016 law and
that other states would see increases totaling $34bn, whereas the
companies cite Government Accountability Office estimates closer to
$8-13bn. Whatever the figure, a lot of tax dollars, and a big
consumer perk, are on the line when the Supreme Court hands down
its decision in May or June.

* Should online retailers have to collect sales taxes in
states where they have no physical presence?

BILLIONS of dollars and long-standing interstate e-commerce
rules are at stake in a case that came before the justices on April
17th. The case revisits an old Supreme Court rule that retailers
shipping goods to states where they have no physical presence
cannot be forced to collect sales tax from their customers. This
standard is outdated, South Dakota’s attorney-general told the
justices, and deprives states of “massive sales tax revenues that
we need for education, healthcare and infrastructure”.

The conflict in South Dakota v Wayfair
Inc arose in 2016 when the Midwestern state noticed that
more of its residents were shopping online. In defiance of a
quarter-century-old Supreme Court precedent, South Dakota tried to
shore up its declining revenues by imposing sales-tax collection on
far-flung stores doing more than $100,000 of business, or
conducting more than 200 transactions, in the state.

When the conflict hit the lower courts, South Dakota’s law was
struck down as a violation of the constitution’s Commerce Clause in
line with Quill v North Dakota, a 1992 ruling. But the state pinned
its hopes on Justice Anthony Kennedy’s comment in 2015 that Quill
was “doubtful” and ripe for reconsideration. “[D]ramatic
technological and social changes” in America’s economy, he wrote,
along with “startling” state budget shortfalls, cast the
Quill-mandated sales-tax regime in a less appealing light.

It would take five justices to overrule Quill and permit states
to force out-of-state retailers to step up and collect tax. Going
into the hearing, conservative Justices Neil Gorsuch, Clarence
Thomas and Kennedy all seemed inclined to do that. The oral
argument added a surprise fourth justice to that list: Ruth Bader
Ginsburg, the court’s fiercest liberal. In her questioning of
George Isaacson, the lawyer for several online stores including
Wayfair, a homewares company, she repeatedly called Quill
“obsolete”. Requiring an “out-of-state seller to collect tax on
goods shipped in-state” is “equalising sellers”, she said.

In response, Mr Isaacson said the Commerce Clause seeks to
ensure a “single national marketplace that is free and accessible
to all participants”. When the court first weighed in on the
question in 1967, America had 2300 different sales-tax
jurisdictions. That number rose to 6000 by the time Quill was
decided and stands at over 12,000 today. So any store selling wares
over the web would face the onerous task of calculating various
items’ precise tax rates for countless addresses across the
country. Smaller retailers may not be up to the task.

Exactly how burdensome and expensive the accounting might be is
a matter of dispute. Justice Sonia Sotomayor pointed to one brief
claiming the cost would be as high as $250,000; the lawyer for
South Dakota said it would be closer to “$12 a month for 30
transactions”. Online software companies filed a
friend-of-the-court brief touting services like TaxCloud and
WooCommerce that might do the job for free—but when Wayfair and the
other retailers tested these websites, they quickly found them
“rife with errors”.

These and other conflicting claims seemed to befuddle Justice
Stephen Breyer, who may hold the key vote. “When I read your
briefs, I thought absolutely right”, he told the lawyer for South
Dakota. “And then I read through the other briefs, and I thought,
absolutely right. And you cannot both be absolutely right.”

The justices also pointed to disparate predictions of how much
states stand to gain if the court abandons Quill. South Dakota says
it would reap another $50m in tax revenues through its 2016 law and
that other states would see increases totaling $34bn, whereas the
companies cite Government Accountability Office estimates closer to
$8-13bn. Whatever the figure, a lot of tax dollars, and a big
consumer perk, are on the line when the Supreme Court hands down
its decision in May or June.