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Will SCOTUS Let States Collect Out of State Internet Sales Tax?

By George Khoury, Esq. on March 08, 2018 | Last updated on March 21, 2019

The South Dakota v. Wayfair case is getting closer to the date set for argument in mid-April. The case has potentially major ramifications for online retailers large and small, consumers, and every state in the country.

The basic issue to be resolved is whether a South Dakota law requiring out of state online retailers to collect state sales tax is constitutional given the potential effect interstate commerce. But, as you may have gathered given the widespread prevalence and popularity of online shopping these days, this case is generating quite a bit of political buzz.

Online Taxation Without Physical Manifestation

One of the bigger issues at play in this case is whether a retailer can be made to withhold, pay, and charge consumers, state sales tax when the retailer has no physical presence within the state.

While the rule has long-since been understood that states can only require an online retailer to charge sales tax to out of state purchasers if the retailer had sufficient physical presence in the state, many states have been fighting for their slice of the sales tax pie. As you're probably aware, this isn't the first challenge to a state law demanding out of state online retailers collect and pay state sales tax.

Interestingly, the outspokenly pro-business Trump administration supports South Dakota's law and filed a brief indicating that a virtual presence should be sufficient to render an online retailer liability to collect and pay state taxes. Other supporters of the law have called for a reversal of the brick and mortar presence standard established by SCOTUS in the 1992 Quill v. North Dakota.

An Iota for a Dakota

While it may seem obvious to some why South Dakota's out of state online sales tax case is the one making it to SCOTUS, others may not see the obvious: Rural states have a dearth of brick and mortar retail, and with the increasing popularity of online shopping, these states lose out on quite a bit of sales tax.

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