Online shopping sales tax issue: Will SCOTUS take the case?

On Behalf of | Sep 19, 2017 | Business Litigation |

Imagine politicians in one state purposefully drafting legislation to fail in its first assessment by a court.

That is precisely what has happened in South Dakota, with the national publication Bloomberg noting that a statute enacted by legislators there “was specifically drafted so the state’s highest court could quickly reject it and send it up for U.S. Supreme Court review.”

Following is a bit of background to flesh out that seeming incongruity.

In 1992, the nation’s highest court issued a ruling that freed retailers that did not have a physical presence in a given state from any requirement to collect sales taxes on items sold to residents of that state.

Obviously, the retail landscape has changed much since then, with online shopping exploding and materially undermining the prospects of so-called brick and mortar establishments across the country. These days, states are truly hurting from millions of tax dollars lost when sales taxes are not collected on online purchases.

South Dakota officials, like those in all other states, want such revenue and consider it unfair that online retailers needn’t collect it on their behalf, just as stores with a physical presence do.

Thus, legislators there wrote a law that directly contradicts the Supreme Court ruling that relieves online retailers from tax-collection duties. And then they embroiled two companies making online sales in the state — one of them a California enterprise — in litigation. Those businesses appealed to the South Dakota Supreme Court, which reversed a lower court in a ruling stressing that no lower-level judicial opinion can contradict the Supreme Court’s 1992 ruling.

South Dakota officials and their peers across the country want the country’s highest tribunal to take the case on appeal, thinking that the court’s justices might now be of a collective mind to reverse their earlier case and support the argument mandating retailers’ collection and remittance of sales taxes.

Will the court take the case?

No one seems to know for sure, or what the outcome will be if the court does issue an appellate ruling.

One thing is certain, though, and that is that any court ruling on the issue will have vast implications for online retailers and the future of stores at actual physical locations.

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