Supreme Court hesitates on US state sales tax ruling

By Dan Wilson April 17, 2018 - 6:16 pm

The 9 US Supreme Court justices seem hesitant and split when it comes to the US state sales tax case they are required to rule on in the next few months.

The nine judges of the highest court in the land heard a one-hour argument which saw South Dakota against several ecommerce businesses led by Wayfair about whether online venues should collect state taxes. We wrote about the case previously here. Obviously the states involved are keen to get their hands on what could be many billions of dollars of revenue. The companies argue that the administrative burden would be too onerous.

Justice Elena Kagan said that it might be better if the Supreme court did not rule on the case because it could be better decided by the legislature: “Congress is capable of crafting compromises.” Justice Sonia Sotomayor noted that in such a complex case the court might not be best placed to give a definitive solution. Several other justices seemed sympathetic to South Dakota.

South Dakota wants the justices to overturn a 1992 Supreme Court decision that means individual states cannot require retailers to collect state sales taxes unless the businesses have a “physical presence” in the state.

Obviously such a ruling was made in the days before ecommerce became ubiquitous. The contested 2016 South Dakota law requires out-of-state online merchants to collect the sales tax if they make $100,000 in sales or 200 separate transactions per annum. One of the reasons South Dakota is so interested in the sales tax issue is because it’s a state that doesn’t levy income tax.

This is not the end of the matter: the Supreme Court justices are expected to rule on the case by the end of June.

Ecommerce companies supporting supporting Wayfair, Overstock and Newegg in the action include marketplaces eBay and Etsy. But Amazon isn’t involved in the case. It already pays state sales taxes on items it sells directly but doesn’t collect taxes on third-party sales.

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