E-Retailer Supporters in Sales Tax Dispute Foresee Seller Troubles

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By Ryan Prete

Small businesses across the country will be in jeopardy if the U.S. Supreme Court overturns a case prohibiting states from imposing sales tax collection obligations on out-of-state sellers.

That’s the argument of individuals representing organizations that are backing e-retailers Wayfair Inc., Newegg Inc., and Overstock.com Inc. in South Dakota v. Wayfair—a case directly challenging the 1992 ruling in Quill Corp. v. North Dakota that restricts states’ taxing authority over remote retailers.

Oral argument in the Wayfair case is scheduled for April 17, and practitioners expect a decision by late June.

“For many small- and medium-sized businesses, the cost of overturning Quill would be fatal,” Andrew Pincus, a partner with Mayer Brown LLP, said during an April 9 panel discussion at the National Press Club in Washington. Pincus was an author of an April 4 friend-of-the-court brief filed by Ebay Inc. and independent small businesses in all 50 states that operate on Ebay’s marketplace platform.

“The reality is that a lot of these companies will go out of business because of the intolerable effects that will come with a Quill reversal,” Pincus said.

GAO Report

Pincus cited a December 2017 Government Accountability Office report that, in part, estimated states already receive sales and use taxes from 87 percent to 96 percent of sales from the top 100 online retailers.

Pincus told audience members that if they were to read only one study concerning the case, it should be the GAO report—which he said offered “strong support for the argument to maintain Quill.”

Pincus said the report also found that 19 of the top 20 internet retailers collect sales tax in all or most jurisdictions, and that if Quill were overturned, sellers would have to comply with tax rates in over 12,000 jurisdictions, which would present severe compliance burdens for small sellers.

However, the same report also presented evidence that could support the kill- Quill argument, as it estimated that state and local governments could have gained between approximately $8 billion and $13 billion in 2017 if states were given authority to require sales tax collection from all remote retailers.

“The GAO report is confirmation of the damage that’s been done to state budgets and brick and mortar retailers since the 1992 Quill decision. Special treatment for online-only retailers has meant billions in lost revenue and lost jobs in communities across the country,” Deborah White, senior executive vice president and general counsel at the Retail Industry Leaders Association, previously told Bloomberg Tax.

Pincus also warned about retroactive tax measures—which he called inevitable if Quill is reversed—and said that the Supreme Court couldn’t protect and prepare small businesses like Congress could, despite no major movement on federal legislation.

International Implications

Meanwhile, Matthew Schruers, vice president for law and policy at the Computer & Communications Industry Association (CICA), said a reversal of Quill could have international effects—a topic he said is rarely explored. The CICA also submitted an April 4 friend-of-the-court brief in favor of the e-retailers.

Schruers also said a new digital tax precedent could limit where companies ship products in the U.S., diminishing state and local tax revenue.

Jonathon Hauenschild, director for the American Legislative Exchange Council’s (ALEC) Task Force on Communications and Technology, in part argued that killing Quill would present a damaging obstacle to sellers attempting to enter a national marketplace. And Sam Kazman, general counsel with the Competitive Enterprise Institute (CEI), said that the Quill physical-presence rule is a just one that levels the playing field for all businesses.

ALEC and the CEI likewise filed April 4 briefs in favor of the e-retailers.

The case is South Dakota v. Wayfair, Inc., U.S., No. 17-494, reply brief filed 4/9/18 .

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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