States Excited Over Online Sales Tax Ruling

By John Celock

Groups representing state governments are claiming victory following Thursday’s U.S. Supreme Court ruling that states could collect sales tax on online purchases.

The Court ruled in South Dakota v. Wayfair that states could collect sales tax on online sales from companies that do not have a physical presence in the state. The 5-4 ruling culminates an over a decade effort by a group of state government groups to allow for the collection of online sales taxes, citing a loss of billions of dollars by state governments nationwide.

“Today’s decision by the U.S. Supreme Court is a victory for Main Street America. Brick and mortar stores will no longer be penalized for collecting the tax revenues that fund our schools, infrastructure, and the vital public services that state and local governments provide. For states, today is just the beginning,” National Conference of State Legislatures President Deb Peters, a Republican state senator in South Dakota, said in a statement. “We’ve waited 26 years. Good tax administration is good public policy and state officials look forward to working with all stakeholders in the coming months as we move forward to level the playing field for all of our nation’s retailers.”

Peters was the author of the South Dakota law at the center of the Supreme Court ruling.

NCSL, along with the National Governors Association and the National Association of State Budget Officers, has been at the center of the push to allow states to collect online sales taxes. NCSL estimates that state governments collectively have lost out on $23 billion annually in online sales taxes.

Following a 2015 Supreme Court ruling that said that the court would be interested in reviewing the online sales tax issue, NCSL developed model legislation for states to use to push the issue forward for court consideration. The legislation allows for the collection of online sales taxes if a business does over $100,000 a year in sales in a state.

The online sales tax issue has its roots in a 1992 Supreme Court ruling, Quill v. North Dakota, which allowed for state governments to collect sales tax on catalog sales. The 1992 court case was first pushed by U.S. Sen. Heidi Heitkamp (D-N.D.) when she was North Dakota’s tax commissioner.

NCSL, NGA and NASBO had been pressing the online sales tax issue from a legislative perspective, including in the form of the Marketplace Fairness Act, an annual priority for the state government groups. The legislation, which passed the U.S. Senate in 2013, was developed following the development of technology to allow for the collection and states addressing collection issues across state lines.

While the Marketplace Fairness Act saw a Senate victory, the bill never advanced in the U.S. House of Representatives. Supporters said the bill would allow states to collect a tax that they were already owed, while opponents said it would create a new tax. Consumers had the option of paying sales tax to the state following an online purchase.

Supporters would also press that the legislation would help brick and mortar businesses, noting that consumers were going to Main Street businesses to browse and then would order online to avoid sales tax.