Courts

South Dakota v. Wayfair Is Here So We Can Finally Have A 21st-Century Tax System

Assuming, of course, that at least five Supreme Court justices are ready to engage with the modern world.

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I couldn’t be more excited for Supreme Court’s decision to hear South Dakota v. Wayfair. We need this case. Our polity needs this case. This case is going to put money back in the hands of state governments that are starved for cash.

Assuming the Supreme Court doesn’t screw it up, of course.

Wayfair is going to address the online sales tax issue, head on. As tax issues go, this one is pretty straightforward. The Court has ruled that online retailers don’t have to collect state sales taxes unless they have physical presence in the state.

The court’s precedent goes back to a 1992 case, Quill Corp v. North Dakota (Dakota nexus is coincidental, I believe). Quill sold offices supplies through a catalog and Justice Stevens, writing for the majority, ruled that they did not have to collect taxes on behalf of North Dakota.

I should back up for our Millennial readers: in the before times, businesses used to mail out catalogs to people who lived in the middle of nowhere, and those people would order products and mail them money, and then the company would mail them back the product. The whole process took, like, thousands of years and was massively inefficient. But, it was the way people who lived outside of cities got watches and brides and things.

Our rules for collecting sales taxes on products ordered from out of state are based on that system. The precedent is based on that ARCHAIC way of purchasing goods. It made some sense when Richard Sears was sending you a pocket watch on the Union Pacific. But it has almost nothing to do with the modern world. If you are shopping in a state, you should pay the state’s sales tax. The fact that the place you are shopping at is now located in low-earth-orbit for all intents and purposes shouldn’t flummox our entire tax structure.

The current precedent deprives states and localities of literally billions of dollars. Unless the retailer has a physical location in your state, they’re not required to collect sales taxes. You’re just supposed to report how much you should owe in sales tax to your local officials. You can imagine how often that happens.

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Local retailers also claim the system puts them at a severe disadvantage against online retailers. Why would you go to your local store when you can order the same product online and avoid the sales tax?

South Dakota, a state whose economy seems to be based on people looking at rocks, has had enough of that. It passed a law requiring companies with over $100,000 in sales to collect its 4.5 percent sales tax on purchases made by South Dakota residents.

WayFair, NewEgg and Overstock all opposed the legislation, and now the Supreme Court will hear the case. Lower courts sided with the retailers based on the Court’s precedent in Quill. I’d like to think that the Supreme Court wouldn’t have taken the case unless it was seriously thinking of overturning Quill.

Of course, the Roberts Court is the most pro-business Court in the history of the country. Any time you see giant corporate interests on one side, and the proper functioning of government on the other, the likely result will be five conservative justices figuring out a way to protect the corporate interests.

Here, the conservatives don’t even have to fully bury their heads in the sand and pretend that we’re back in 1918. You’ll note that Amazon is not among the companies suing South Dakota. Amazon, the biggest fish in the online retail pond, is not involved in this lawsuit, in part because the company now collects sales taxes in all 45 states that have sales taxes.

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They didn’t always. They benefited from/hid behind the physical presence exception as much as anybody. But eventually Amazon determined that in order to meet their “next day”/”same day”/”just leave us the key we will put things in your house we’re pretty sure you want” delivery obligations, they needed physical locations close to most consumers anyway. Amazon “fulfillment centers” were already so ubiquitous that by the time they decided to collect sales taxes everywhere in early 2017, the change only affected five additional states.

How does that example help pro-business conservatives? Well, it looks a lot like the kind of market panacea that conservatives are always banking on. They’ll argue they don’t need to change the physical presence requirement, because eventually companies will have to have physical presences to compete in your state anyway. Billions of state funds have been lost, but now the market is going to naturally and magically correct itself, “so… get out of my courthouse.”

“The market will provide” argument doesn’t hold up even in the Amazon case. Amazon collects tax only on products you buy from Amazon. If you buy stuff from any of the third-party retailers you find through Amazon, well, that’s their problem, not Amazon’s. So, again, billions of state tax monies could be lost even if we just rely on the Amazon model.

At the risk of stating the obvious: Applying sales taxes to online retailers in the global digital economy IS NOT AT ALL LIKE taxing sales from mail order catalogs. Christ. Football and American Football are NOT THE SAME SPORT.

Two years ago, Anthony Kennedy indicated that it was time for the Supreme Court to “re-examine” Quill. He could be the fifth vote for a holding that says: “Holy crap, it’s the future already.”

Supreme Court will decide billion-dollar question for online sales: Can states collect sales taxes on all purchases? [L.A. Times]

Elie Mystal is the Executive Editor of Above the Law and the Legal Editor for More Perfect. He can be reached @ElieNYC on Twitter, or at [email protected]. He will resist.

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