Outside groups have had their say in a Supreme Court case over South Dakota’s collection of sales tax from online retailers. All that’s left is for the lawyers to make their case.
Oral arguments in South Dakota v. Wayfair, Inc. are set for April 17, the day federal tax returns are due. The Court will consider whether to overturn a 1992 ruling barring states from collecting sales tax from retailers that have no physical presence there. Wayfair originates from a law recently passed in the Mount Rushmore State, but other jurisdictions have moved to collect online sales taxes as well, all while Congress has struggled to resolve the issue for years.
Briefs from outside parties were due Wednesday, and the collection of 43 amicus filings represent a broad coalition of interests on both sides, ranging from lawmakers to the manufacturers of a special-made TV remote designed for people with disabilities. But in their totality, the briefs represent the complexity of the issue and how the controversy spans industry and political lines.
In one filing, Sens. Lamar Alexander, Heidi Heitkamp, Dick Durbin, and Michael Enzi said they favor states’ ability to collect tax from online sales. The bipartisan group are cosponsors of the Marketplace Fairness Act—perennial legislation, but ultimately never passed—that would enable states to collect sales tax from retailers with no physical presence there.
The senators argue that brick-and-mortar businesses in their states are at a disadvantage compared to online retailers.
“They have a price advantage over businesses with a physical presence there of up to 11% in Illinois, 8.5% in North Dakota, 9.75% in Tennessee, and 6.0% in Wyoming, simply because they cannot be required to collect those state taxes,” the filing said.
But antitax group Americans for Tax Reform, headed by Grover Norquist, argued that the systems and software necessary to calculate and levy taxes from online sales pose an undue burden on multistate and international retailers. Overturning the 1992 case, Quill Corp. v. North Dakota, would create a chaotic tax environment, according to the group.
“If this court overturns Quill, retailers with no presence in a taxing state will face complex and costly collection obligations, the threat of expensive and intrusive audits from thousands of taxing jurisdictions, and potential retroactive tax assessments,” ATR wrote in its brief.
Norquist told National Journal that it’s also an issue of federalism, and that out-of-state companies may have little recourse when dealing with state or local governments looking for additional revenue.
“There is no limit to what Alabama will do to [Maine-based] L.L. Bean, to abuse it with taxes and citations and fines, because nobody at L.L. Bean votes in Alabama,” Norquist said.
Most filings were from advocacy groups, but one came from a small retailer, Flipper LLC, which manufactures a specialized TV remote for individuals with blindness, brain injuries, or other physical or mental challenges. The $30 remote features a big, simple button layout.
Most of Flipper’s sales go through third-party retailer channels of the online giant Amazon.com, Inc. Flipper argues that while the South Dakota sales-tax law exempts companies with less than $100,000 in sales or 200 transactions in the state, it is not protected by that safe-harbor language because it’s unable to predict how many units Amazon will sell in a given jurisdiction, and can’t collect sales tax retroactively if it passes the threshold. Amazon voluntarily collects sales tax on its own, direct sales, but not for third-party suppliers unless they pay a fee.
Justices will hear the case in the wake of a volley of White House attacks against Amazon.
In the past two weeks, President Trump has ramped up a Twitter campaign against the online giant and its founder, Jeff Bezos, who also owns The Washington Post. Trump’s tweets claimed that Amazon has an unfair advantage because it doesn’t pay state and local sales tax and has drained the U.S. Postal Service of resources.
“I have stated my concerns with Amazon long before the Election,” Trump tweeted on March 29. “Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!”
Amazon, however, backs the Marketplace Fairness Act, and last year started voluntarily collecting tax on sales made directly by the company nationwide.
The administration filed its own brief with the Court, with Solicitor General Noel Francisco stating that online retailers selling to South Dakota residents comprise a “virtual presence” that justifies the state collecting a sales tax.
Trump’s support for an online sales tax—bucking many conservatives in his party—isn’t new. In January, Rep. Kristi Noem of South Dakota said Trump had committed to sign her own bill, which would allow states to collect sales tax from online retailers, much like the Marketplace Fairness Act.
But Noem—who is set to run for governor this year—hasn’t had much luck in moving the Remote Transactions Parity Act through Congress. Noem pushed to have her bill attached to an omnibus spending measure in late March. But her efforts received pushback from some conservatives, with Sens. Ted Cruz and Steve Daines saying the language would hurt small businesses.
The issue split conservatives, and the opposition was enough to keep Noem’s language out of the funding bill. Noem has said she would consider forcing a House vote on the bill using a discharge petition, which requires a majority of House members to sign onto the effort.
The petition plan is a long shot, but if successful, Noem’s bill could render the court case moot and score her a big political win in her gubernatorial effort. One of her opponents in the June 5 Republican primary is state Attorney General Marty Jackley, who is representing South Dakota in the Wayfair case, and the two are competing to win millions in additional tax revenue for the state.
The Court could issue a range of decisions, such as upholding the existing Quill ruling, or upholding only the South Dakota law but not similar laws in other states. The Court could also reverse the Quill ruling without giving any guidance, said Joe Bishop-Henchman, executive vice president of the Tax Foundation and author of that group’s court brief supporting the South Dakota law.
Bishop-Henchman said that the uncertainty created by a broad ruling removing existing rules without establishing a framework could create a 50-state patchwork of online-sales-tax rules and force Congress to act, despite lawmakers’ inability to advance legislation so far.
“It is possible, if the Supreme Court does really take away all restraints, maybe Congress would then be finally compelled to act,” he said.