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By Ryan Prete
A South Dakota Supreme Court justice suggested during Aug. 29 oral arguments that the U.S. Supreme Court should revisit a 25-year-old opinion that restricts the ability of states to tax remote retailers ( South Dakota v. Wayfair, Inc., S.D., No. 28160, oral arguments 8/29/17 ).
The state Supreme Court heard argument over the state’s “economic nexus” law, S.B. 106 (codified as S.D. Codified Laws Chapter 10-64), which requires remote retailers with annual in-state sales exceeding $100,000 or 200 separate transactions to collect and remit sales tax. The lower Sixth Judicial Circuit Court found the law unconstitutional under Quill Corp. v. North Dakota, the 1992 U.S. Supreme Court decision that prohibits states from imposing sales and use tax collection obligations on vendors without a physical presence in-state.
South Dakota hasn’t challenged the lower court, maintaining its acknowledgment that S.B. 106 conflicts with Quill. However, the state positioned the law as a vehicle for the U.S. Supreme Court to re-examine Quill.
“The Legislature in the state is arguing that this is under the commerce clause and the philosophy of the dormant commerce clause. We are in an entirely different situation than when the commerce clause was originally adopted, so isn’t this something the U.S. Supreme Court can and should look at?” Justice Glen A. Severson asked.
“The problem with the legislation and your suggestion that the Supreme Court should look at this issue again is that this is a case where there is no factual record at all,” responded George S. Isaacson, senior partner with Brann & Isaacson and counsel for the e-commerce companies in the case—Wayfair Inc., Overstock.com Inc. and Newegg Inc.
Isaacson argued that the U.S. Supreme Court shouldn’t decide the fate of state sales tax collection, but Congress, to which the U.S. Constitution assigns the responsibility for regulating interstate commerce. The Quill opinion opines that Congress should wade into the matter.
Isaacson said South Dakota was suing the companies without taking into account sufficient evidence in terms of their tax burdens and potential losses from collecting sales and use tax. He further argued that the South Dakota case relied wholly on secondary sources that are outdated.
“The state’s reliance on sources is almost exclusively on a study done by two Tennessee professors in 2009, relying on 2006 data. In 2009, Amazon.com was collecting sales tax in only five states, but today they collect in all 46 states,” Isaacson said. “Seventeen of the top 18 e-commerce retailers collect sales tax in South Dakota, so what’s happening isn’t that the reported problem of lost tax revenue is increasing. It’s actually decreasing, as these large multi-channel companies dominate the field and are collecting tax. This is an important fact which isn’t in the record.”
South Dakota Attorney General Marty Jackley (R), however, urged the state Supreme Court to rule against the state, allowing the case to act as a vehicle for U.S. Supreme Court consideration.
Jackley had three requests for the South Dakota Supreme Court:
Jackley further argued that the U.S. Supreme Court should revisit the 1992 Quill ruling to honor a 2015 suggestion in a concurrence by Justice Anthony Kennedy. Similar lawsuits to prompt U.S. Supreme Court review are pending in Alabama, Indiana, Tennessee, and Wyoming.
A day before the oral arguments in South Dakota, the Department of Revenue reported that almost $1.6 million has been collected from remote sellers since the state enacted its economic nexus law last year.
“Senate Bill 106 has obviously helped with our compliance and tax collection since it went into effect. We are pleased with the progress we have made as a result of the law, and we appreciate the businesses who have obtained a license and collected tax,” the Department of Revenue said in a statement emailed to Bloomberg BNA.
In the report, the South Dakota DOR shared support for the Remote Transactions Parity Act of 2017 (H.R. 2193) and Marketplace Fairness Act of 2017 (S. 976)—both of which would expand states’ taxing authority over remote retailers. Those federal bills, along with the No Regulation Without Representation Act of 2017 (H.R. 2887) (which would codify Quill), are pending and haven’t received a vote in Congress.
A representative of the Retail Industry Leaders Association (RILA) spoke out in favor of South Dakota’s push to get a case in front of the U.S. Supreme Court.
“The artificial price advantage created by the United States Supreme Court and enjoyed by online-only sellers for two decades has created a significant market distortion, an inequity that has led to the shuttering of thousands of brick and mortar stores,” Deborah White, senior executive vice president and general counsel for RILA and president of the Retail Litigation Center, said in an emailed statement. “The time has come to rectify this bias and restore basic free market competition.”
“We are hopeful that the South Dakota Supreme Court will quickly issue an opinion that explains to the federal court the harm the pre-Internet Quill decision has inflicted on both the states and local retailers,” White said. “With a quick ruling, it’s possible that the U.S. Supreme Court could choose this case to bring resolution to the states and merchant community during its October 2017 term.”
With assistance from Laura Davison
To contact the reporter on this story: Ryan Prete in Washington at firstname.lastname@example.org
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