April 17, 2018
The United States Supreme Court reportedly appears unsure how to rule on a case involving sales tax charged on out-of-state e-commerce transactions.
Amazon, among other e-commerce services, has long been able to avoid charging sales tax on out-of-state on purchases — a loophole that rankles in-state brick-and-mortar businesses.
A lawsuit brought in South Dakota challenges a 1992 Supreme Court ruling that states can’t charge sales tax on businesses without a physical presence in the state. A reversal of the law could be worth $18 billion to states and could significantly impact (raise prices) on e-commerce.
A lower court case involving Wayfair, Overstock.com and Newegg ruled in favor of the e-commerce platforms.
Interestingly, in an era of tax avoidance, the justices April 17 heard arguments, with comments against taxes coming from left-wing justices Elena Kagan and Sonia Sotomayor, while conservatives, including President Trump appointee Neil Gorsuch, appeared in favor of taxes, according to Reuters, which is following the case.
“Congress is capable of craftly compromises,” Kagan said without irony. Sotomayer wondered if changing the law would set off an avalanche of new state taxes, hurting Internet start-ups.
In 2015, Justice Anthony Kennedy said the landmark law was outdated and left most of e-commerce tax free.
“Given … changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the court’s holding,” Kennedy said. “The legal system should find an appropriate case for this court to [revisit the original case].”
South Dakota in 2016 passed a law requiring out-of-state businesses collect sales tax if they generate at least $100,000 in revenue or 200 transactions. It is supported by business groups, including the National Retail Federation, whose members ironically feature e-commerce subsidiaries Walmart.com, Target.com and Amazon.
Trump upped the politics of the case when he went after Amazon on Twitter, accusing the company of having an unfair tax advantage. Amazon founder/CEO Jeff Bezos owns The Washington Post, which frequently criticizes Trump.
The Supreme Court is expected to rule on the matter by this summer.