Online Sales Tax Supporter Wins South Dakota Governor Primary

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By Ryan Prete and Christopher Brown

South Dakota’s Republican gubernatorial primary involved two of the most fervent supporters of state’s authority to tax online sales.

And the issue will continue to be a primary focus for the state, which has led a charge of activity to expand tax authority over the digital economy.

The state’s lone representative in the U.S. House, Kristi Noem, soundly defeated state Attorney General Marty Jackley June 5 to win the Republican nomination for the Nov. 6 gubernatorial election.

The two candidates disagreed on a number of issues, but they aligned on and were outspoken about the right for states to tax purchases made from vendors lacking an in-state physical presence. It’s an issue that South Dakota has become known for championing as it is the state of record in a potentially landmark U.S. Supreme Court case involving Wayfair Inc.

Jackley in Court

The primary came just weeks after the U.S. Supreme Court heard oral argument in South Dakota v. Wayfair, the long-awaited direct challenge to the 1992 decision in Quill Corp. v. North Dakota.Quill, which states for years have tried to “kill” through lawsuits and legislation, prohibits states from imposing sales tax collection obligations on vendors lacking an in-state physical presence. The case was argued April 17, and practitioners expect a decision later this month.

Jackley argued before justices in support of South Dakota’s economic nexus law, contending in part that collection compliance costs for vendors are minimal, as low as $12 a month for 30 transactions, and that Congress’s inability to address the issue of state taxation over online sales justified the high court reversing Quill.

After the argument, Jackley told Bloomberg Tax that he offered a voice for small businesses that in the past has been silenced.

“Congress has had 26 years to solve this issue and has failed. It’s time that main street businesses have a voice and are recognized,” he said.

Jackley said he was confident in the argument presented in favor of South Dakota and that the court would rule to undo Quill‘s quarter-century long precedent.

Noem on the Hill

Noem, meanwhile, is the sponsor of the Remote Transactions Parity Act of 2017 (H.R. 2193) (RTPA)—one of several bills that seeks to undo Quill, but hasn’t moved substantially.

Noem previously told Bloomberg Tax that Congress needs to pass legislation before the Supreme Court reaches a ruling in Wayfair. Most recently, Noem fell short in a last-minute attempt to persuade lawmakers to include a digital tax provision in a federal omnibus spending bill signed by President Donald Trump March 23.

Billie Sutton

Noem will now face South Dakota Senate Minority Leader Billie Sutton (D) in the November general election.

Sutton told South Dakota’s Public Radio on March 11 that he agreed collecting sales taxes from people making online purchases would potentially be good for South Dakota. He said that Congress would have to act as an authoritative body in the event that Quill is overturned.

“If the Supreme Court ruling goes in our favor, I would think that Congress is going to have to work to put a system in place to make this happen,” Sutton said. “I don’t know that each individual state has the capacity to try and regulate this.”

General Election

After Noem’s resounding win in the primary—56 percent to Jackley’s 44 percent.—she appears to be close to a shoe-in this November.

Sutton is a popular figure in the state who had the advantage of winning the Democratic nomination without opposition, and thus without a costly and divisive intra-party fight.

But the state last elected a Democrat for governor in 1974 and voted for Trump by a nearly 30-point margin in 2016.

National political prognosticators rate the South Dakota gubernatorial race as solid Republican.

Professor Julia Hellwege, an assistant professor of political science at the University of South Dakota, told Bloomberg Tax June 6 that those assessments “would appear to be well-founded.”

Noem has distinct advantages in name recognition, in the party affiliation of the South Dakota electorate, and in fundraising, Hellwege said. “Add them all up and she has a much greater likelihood of winning. It’s pretty clear,” she said.

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com and Christopher Brown in St. Louis at chrisbrown@bloomberglaw.com

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

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