One day into a U.S. Supreme Court case that can reset the balance on collection of tax for ecommerce sales, justices appeared split on the issue arising out of South Dakota.
The case will decide whether the court’s 1992 Quill ruling, which limited taxation to states where merchants have a physical presence, should stand or be overturned. The law is being challenged by defendants Overstock.com, Newegg and Wayfair.com.
South Dakota law passed a law in 2016 requiring out-of-state merchants to collect a 4.5% sales tax if above the threshold of $100,000 in sales or 200 transactions, knowing it violated the 1992 decision. The state then sued the three companies in 2017 to collect sales tax under its law, setting up the high court case.
Various estimates peg the amount of tax revenue that would flow to states at between $8 billion to $23 billion annually. Overturning Quill is favored by states as well as traditional retailers and trade groups, and President Donald Trump, or at least limiting it to catalog companies, which gave rise to the 1992 ruling.
Amazon collects sales taxes on direct purchases from its marketplace in all 45 states that have a tax, plus the District of Columbia, even though it doesn’t have a presence in all of them, but not from third-party sales, which make up about half of its sales.
Supreme Court Justices Anthony Kennedy, Neil Gorsuch and Clarence Thomas had already indicated they favored overturning Quill before the case was heard. On Tuesday, Justice Ruth Bader Ginsburg suggested she would join them, calling the ruling “obsolete,” according to Yahoo Finance. Ginsburg said letting states tax online sales would equate to “equalizing sellers.”
But Supreme Court Justices Sonia Sotomayor and Samuel Alito said the decision on ecommerce taxation should be left up to Congress, Yahoo reported. Sotomayor said the lack of a mechanism for collecting taxes directly from consumers was the real problem, not the Quill ruling.