Supreme Court Report

The high court weighs whether internet retailers must collect state sales taxes

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South Dakota “took the writings of the Supreme Court to heart and came up with a viable solution,” says state Attorney General Marty J. Jackley. “This has become South Dakota leading the fight with a lot of help.”

Jackley, a Republican who is running for governor this year, cites the numerous amicus briefs that were filed on the state’s side at the petition stage, including one by 35 other states that calls for the court to overrule Quill.

“This is a fight to save Main Street America,” Jackley adds, highlighting the harm Quill has caused mom-and-pop retailers. “The physical presence requirement is outdated.”

Teicher of the American Booksellers Association, which represents independent bookstores across the country, also filed a brief in support of South Dakota. He says internet retailers that do not collect sales taxes “had a radically competitive advantage over those of us who do collect them.”

“If a sales tax is passed by the state legislature and local governments, it ought to be collected across the board,” Teicher says.


South Dakota sued four out-of-state internet retailers, seeking to require them to begin collecting taxes and to test the validity of its new law. One retailer, Systemax, threw in the towel and started collecting sales taxes. The other retailers decided to fight. They are Wayfair, a retailer of home goods;, a general retailer; and, which specializes in tech products.

The South Dakota Supreme Court agreed with the retailers that Quill remained the controlling precedent, and that the state could not bypass the physical presence rule to impose sales taxes on the out-of-state retailers.

The retailers, in their preliminary U.S. Supreme Court brief (which unsuccessfully urged the justices not to take up the case), argue that Quill was not badly reasoned and the physical presence rule is a perfectly working standard.

The retailers also are concerned about the difficulties of complying with sales tax obligations that they say remain quite complex.

“There are 12,000 sales and use tax jurisdictions” across the country, says George S. Isaacson, a senior partner at Brann & Isaacson. The Lewiston, Maine-based law firm specializes in tax issues and is representing the internet retailers before the Supreme Court.

Among the complications, Isaacson says, is that some local jurisdictions recognize state tax holidays and some don’t; and the computer software designed to simplify such collections often does not accurately identify items that are exempt from sales taxes in a given state or locality.

“This notion that there is a very easy fix to collecting tax is not true, especially for small companies,” he says.

The internet retailers also are concerned about possible retroactive tax liability, although South Dakota’s law makes clear there is not retroactivity.

“The fact that the state of South Dakota as a matter of legislation has said we will only apply this prospectively isn’t binding on any other state,” Isaacson says. “The risk of retroactive liability is very real.”

Daniel Hemel, an assistant professor at the University of Chicago Law School, says he is unconvinced by the retailers’ retroactivity concerns.

“No state has suggested it wants to apply this retroactively,” says Hemel, who signed an amicus brief by law professors and economists in support of South Dakota.

This article was published in the April 2018 issue of the ABA Journal with the title "Taxing question: The high court weighs whether internet retailers must collect state sales taxes/"

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