High Court Agrees to Hear Latest Challenge to Internet Sales Tax Ruling

January 15, 2018  by Larry Thomas in Industry, Legal   

The case, in which South Dakota sued home furnishings powerhouses Wayfair (NYSE: W) and Overstock.com (NYSE: OSTK), and electronics and appliance retailer Newegg, is the latest twist in a nearly three-decade battle pitting brick-and-mortar retailers against e-commerce players as they battle over sales tax collection.

States generally have sided with brick-and-mortar players over the years, claiming they have lost millions of dollars in tax revenue because internet retailers don’t have to collect sales taxes.

“Today, States’ inability to effectively collect sales tax from internet sellers imposes crushing harm on state treasuries and brick-and-mortar retailers alike,” South Dakota Attorney General Marty Jackley said in the state’s petition asking the Supreme Court to accept the case.

The state said the growth of e-commerce in the past 25 years has “imploded” the legal rationale used in the 1992 case, known as Quill v. North Dakota, in which the Court ruled retailers who didn’t have a physical presence in the state didn’t have to collect sales taxes on orders delivered there.

Groups representing brick-and-mortar retailers applauded the Court’s decision to hear the South Dakota case.

"Retailers have supported this case since the beginning, and believe it is the right case to correct the constitutional course set more than 50 years ago -- well before the advent of e-commerce -- that today gives online-only retailers an unfair commercial advantage at the expense of local retailers,” said Deborah White, general counsel for the trade group Retail Industry Leaders Association.

"The retail community is grateful that the Court has recognized the extraordinary importance of this issue,” she added.

Overstock.com issued a statement saying the retailer “looks forward to the opportunity to convince the Supreme Court to confirm its prior rulings protecting the free flow of interstate commerce from overreaching state tax laws.”

“States do not have power to conscript individuals or organizations that do not have a physical presence within their state to do the state’s job of collecting sales tax,” said Jonathan Johnson, president of Overstock subsidiary Medici Ventures and a member of Overstock’s board of directors. “We will confidently stand shoulder to shoulder with our competitors to fight this brash attempt by the State of South Dakota to evade constitutional law,”