Policies & Issues

SCOTUS: States Can Make Online Sellers Collect Sales Tax

Policies & IssuesJun 22, 2018

SCOTUS: States Can Make Online Sellers Collect Sales Tax

The Supreme Court voted to overturn Quill, which makes way for states to begin collecting sales tax from online merchants.

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The Supreme Court ruled 5-4 to overturn Quill, the 1992 ruling that barred states from collecting sales tax from sellers that do not have a physical presence in the state.

Washington--The U.S. Supreme Court has made way for states to begin collecting sales tax from all online sellers by overturning a decision made when only 2 percent of Americans had internet access and mail-order catalogs were king.

Quill Corp. v. North Dakota (1992), which barred states from collecting sales tax from sellers that do not have a physical presence in the state, was overturned by a vote of 5-4, the court announced Thursday morning.

Justice Anthony M. Kennedy authored the concurring opinion, joined by Justices Ruth Bader Ginsberg, Samuel A. Alito Jr., Neil M. Gorsuch and Clarence Thomas.

“Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers,” he wrote. “Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own.”

(When consumers buy an item online and do not pay sales tax at the time of the purchase they are required by law to report and pay it when they do their annual income taxes, though hardly any do so.)

“In effect,” the concurring opinion continues, “Quill has come to serve as a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a state’s consumers—something that has become easier and more prevalent as technology has advanced.”  

Chief Justice John Roberts and Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan dissented, with Roberts stating that while e-commerce has grown into a “significant and vibrant” sector of the economy, the changing of the physical presence rule ultimately should be left up to Congress.

He noted the costs this decision will impose on retailers of all sizes, as they grapple with how to navigate the web of complex tax laws that vary from jurisdiction to jurisdiction.

“The burden will fall disproportionately on small businesses,” Roberts wrote in the dissenting opinion. “One vitalizing effect of the internet has been connecting small, even ‘micro,’ businesses to potential buyers across the nation. People starting a business selling their embroidered pillowcases or carved decoys can offer their wares throughout the country—but probably not if they have to figure out the tax due on every sale.”

The Supreme Court decision to overturn Quill is seen as a victory by many brick-and-mortar sellers
including jewelers, who have long complained about having to compete with sellers who don’t have to charge sales tax.

On Thursday, both Jewelers of America and the National Retail Federation issued statements lauding the Supreme Court’s decision, though both noted the need for congressional action to follow.

“This historic decision from the Court in support of sales tax fairness is a major victory for the jewelry industry, providing a clear path to level the playing field between traditional and online retailers,” JA President and CEO David J. Bonaparte said. “Now, Congress must respond by passing federal legislation to create a universal federal framework for sales and use tax collection in a way that benefits businesses, regardless of the state where their business resides, and avoids a patchwork of state-by-state laws.”

NRF CEO Matthew Shay called the decision a “major victory” but said Congress must now follow the court’s lead and pass legislation implementing uniform, national rules that “provide consistency and clarity for retailers across the country.”

JA, which just held its annual fly-in in which it brings jewelers to meet with Congressional leaders, said it will continue to push Congress to pass federal legislation for sales tax collection.  

The chance to revisit and overturn Quill came to the Supreme Court earlier this year after the state of South Dakota, which estimates that it loses $48-$58 million a year due to uncollected taxes from online sales, asked the court to reconsider the two decades-old decision.

Overstock.com, one of the online retailers that battled South Dakota over the issue, issued a statement following Thursday’s ruling indicating it would comply but called on Congress to step in and legislate a “fair solution.”
 
“Today the U.S. Supreme Court has re-shaped the interstate commerce landscape in a move that could impact small business innovation on the internet, which has been a driving force behind our nation’s economy for the last 15 years,” said Jonathan Johnson, an Overstock.com executive and board member.

“The framers of the Constitution intended Congress to regulate interstate commerce by thoughtful legislation. To lessen the potential impact of today’s ruling on internet innovation, Congress can, and should, pass sound legislation allowing states to accomplish their aims while still permitting small internet business to thrive.”

The full opinion can be found on SupremeCourt.gov.

Editor’s note: The story was updated post-publication to include a statement from Overstock.com, which was received after the story was published.
Michelle Graffis the editor-in-chief at National Jeweler, directing the publication’s coverage both online and in print.

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