U.S. Supreme Court to Hear Case on Ecommerce Taxation

The U.S. Supreme Court has agreed to take up a South Dakota case this term that could reset the balance between online and physical store sellers by requiring taxation of goods sold by out-of-state merchants, Bloomberg has reported.

The ecommerce taxation case, South Dakota vs. Wayfair, arises out of a 2016 South Dakota law that attacked the U.S. Supreme Court’s 1992 Quill decision. That ruling, which didn’t anticipate the ecommerce boom which followed shortly thereafter, struck down taxation of out-of-state sellers that did not have a nexus, i.e. a physical presence in a state.

The high court will take up the ecommerce taxation case in April, with a ruling expected as early as June.

Amazon, which once strongly supported Quill, has changed its tune due to the fact it has a presence in so many states, and growing. The company opted in 2017 to begin collecting sales tax in all 50 states for goods its sells itself, leaving the decision up to third-party sellers on its marketplace – many of whom opt not to, according to Bloomberg.

The 2016 South Dakota law called for out-of-state merchants to pay a 4.5% tax on sales of over $100,000 worth of merchandise within a particular state. The law was subsequently struck down by the South Dakota Supreme Court, and Wayfair, Overstock and Newegg are petitioning the U.S. Supreme Court to leave retail taxation up to Congress.

MCM Musings: There’s no way to overstate the importance of this decision for the future of retail and ecommerce. Wayfair, Overstock and Newegg all argue that overturning Quill would disproportionately hurt countless small and medium-sized online merchants now enjoying a buffer against state sales tax. On the other side, it can be argued that the playing field has been tilted against store-based retailers – but many of them are now selling direct to customers through their own sites, a marketplace or even through drop shipping via a manufacturer or brand. Adding to the drama, Bloomberg reports that three of the nine justices – Clarence Thomas, Neil Gorsuch and Anthony Kennedy – have signaled their opposition to Quill. Stay tuned.

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