Even as buying from eCommerce merchants becomes a common practice, there’s still controversy over just how these companies should collect sales tax. In fact, this issue has been through the lower courts and is now being heard by the Supreme Court. Everything hangs on a 1992 case, Quill Corporation v. North Dakota.
The 1992 Court Case
In the Quill Corporation v. North Dakota case, the Supreme Court ruled that the Constitution bars states from collecting sales tax from any company that isn’t physically and substantially connected to the state.
This ruling has held solid for the last two and a half decades, allowing small eCommerce companies to ply their wares to a national audience without the complications of figuring out how to apply sales taxes at the state, municipal and regional level.
According to reporting by The New York Times, it amounts to about 12,000 different jurisdictions, costing upwards of $250,000 to properly reach compliance. It will take five out of the nine Supreme Court Justices to overrule the Quill decision and they’re not taking it lightly. The current case before the court, South Dakota v. Wayfair has raised a lot of questions that must be answered.
Can the Market Address This Issue Alone?
Although states are complaining about lost revenues, Chief Justice John G. Roberts Jr. argued that the marketplace is already dealing with this issue.
The larger eCommerce players already have physical locations in most or all 50 states, in the form of pop-ups, kiosks and distribution centers. Companies like Amazon are thus already paying taxes in each state, it’s the smaller eCommerce retailers who aren’t and the very ones that will be hurt by overriding Quill.
Other Justices want Congress to address the issue, but indicated that because the legislative body hasn’t may mean that it doesn’t find any issues with the current system of tax collection for online retailers.
Three members of the Supreme Court seem ready to revisit the Quill decision, but others are waiting for additional information before making a final decision. If South Dakota wins, it will be allowed to continue to collect a 4.5 percent sales tax on any eCommerce companies that had more than $100,000 in annual sales or 200 transactions in the state.