Commentary

SCOTUS Divided Over Requiring Online Retailers To Collect Sales Tax

The U.S. Supreme Court heard arguments yesterday in South Dakota v. Wayfair, et al, No. 17-494, a bland-sounding case name for litigation that could have major repercussions for retailers, state treasuries and consumers’ wallets — if not the President’s vendetta against Jeff Bezos.

“South Dakota Attorney General Marty Jackley came to the U.S. Supreme Court Tuesday, backed by the attorneys general in 42 other states, on a mission to overturn a 26-year-old decision that prevents states from collecting taxes on online sales. But the court’s nine justices quickly made clear that it would not be an easy sell,” writes Daniel C. Vock for Governing.

“Jackley had barely begun explaining that states were losing massive amounts of money and small businesses were being harmed by the 1992 case Quill Corp. v. North Dakota before Justice Sonia Sotomayor interrupted.

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“I'm concerned about the many unanswered questions that overturning precedents will create a massive amount of lawsuits about,” she said.

Indeed, “several Supreme Court justices appeared reluctant to overturn a pre-internet precedent exempting many online merchants from collecting sales taxes, despite broad agreement that the e-commerce revolution made the rule ‘obsolete,’” writes Jess Bravin for the Wall Street Journal.

“In a 1992 mail-order catalog case, the court held that, absent congressional approval, states could impose tax-collection duties only on retailers with a ‘physical presence’ within their borders. Congress, with its constitutional power to regulate interstate commerce, was the place to balance state revenue needs with burdens on business, the court said at the time,” Bravin continues.

And that sentiment remains strong. 

“Several justices expressed concerns about imposing crushing burdens on small businesses that sell goods on the internet and about making them liable for back taxes. Justice Sonia Sotomayor said the case before the court … raised ‘a host of questions' and ‘a whole new set of difficulties,’” reports Adam Liptak for the New York Times. “Sounding almost plaintive, she added that Congress, rather than the Supreme Court, was the right forum in which to settle the matter.”

At the end of the day, the court seemed mixed in its thinking — not only as a group but even, at least in one example, within their own minds. 

“Justice Stephen G. Breyer said conflicting estimates on the amount of revenue lost and on the cost to businesses of complying with state requirements made the case difficult,” writes Robert Barnes for the Washington Post.

“When I read your briefs, I thought, ‘Absolutely right,’ ” Breyer told Jackley. “And then I read through the other briefs, and I thought, ‘Absolutely right.’ And you cannot both be absolutely right,” as Barnes relates.

At least not as far as having a coherent law goes. 

There is clearly no ambivalence in the mind of President Donald Trump (although yet should always be a qualifier is his case). He tweeted yesterday: “States and Cities throughout our Country are being cheated and treated so badly by online retailers. Very unfair to traditional tax paying stores!”

The prime target of the president is, of course, Amazon, whose owner, Jeff Bezos, also owns the Washington Post. Among other nettling reasons for Trump’s ire, the paper’s Glen Kessler has compiled a list of more than 2,000 misleading or false statements since he took office. 

But “chances are pretty good that you already pay sales tax on at least some of your online purchases if you live in a state that has sales tax. Amazon collects sales tax on its own products, but not on other businesses’ products that are sold through its website. Walmart also collects sales tax on all online purchases,” points out Hallie Detrick for Fortune.

“Traditional brick-and-mortar retailers believe the case is about fairness. They have had to collect taxes on all of their sales, while shoppers knew they could often pay less by buying the same products online,” David G. Savage writes for the Los Angeles Times.

“State and local governments see online sales as a source of needed revenue. Last year, the Government Accountability Office estimated these governments were losing $13 billion a year in uncollected sales taxes. A group called the Marketplace Fairness Coalition said the loss was much higher and could be as much as $33 billion a year,” Savage continues.

Three justices — Anthony Kennedy, Neil Gorsuch and Clarence Thomas — have already indicated they would overturn the 1992 ruling and Justice Ruth Bader Ginsburg yesterday “suggested she would join them, twice referring to the Quill precedent as ‘obsolete,’” Bloomberg’s Greg Stohr and Justin Blum write. “… The question is whether that group can win over a fifth vote.”

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