Supreme Court online sales tax ruling draws mixed reviews

Overstock.com executive and board member Jonathan Johnson is calling on Congress to “pass sound legislation allowing states to accomplish their aims while still permitting small internet businesses to thrive.” He is pictured being interviewed last summer in the courtyard of the company’s so-called Peace Coliseum headquarters in Salt Lake City, Utah. (Jonathan Johnson/ Twitter)

WASHINGTON — One of the three online retailers that lost a U.S. Supreme Court battle Thursday over collecting states sales taxes for online purchases criticized the court’s decision and urged Congress to intervene.

Jonathan Johnson, an executive and board member at Salt Lake City-based Overstock.com, said the Supreme court ruling — allowing states to force online retailers to collect sales taxes, even when the companies have no physical presence in the states — could hamper “small business on the Internet, which has been a driving force behind our nation’s economy for the last 15 years.”

“The framers of the Constitution intended Congress to regulate interstate commerce by thoughtful legislation,” Johnson said in a statement. “To lessen the potential impact of today’s ruling on internet innovation, Congress can, and should, pass sound legislation allowing states to accomplish their aims while still permitting small internet businesses to thrive.

“Unless Congress responds,” Johnson added, “the court’s ruling may remove key entrepreneurial opportunities before they even get out of the heads of the inventors.”

Other critics, too, argued the decision could exact an especially heavy toll on small businesses.

But Republican South Dakota Attorney General Marty Jackley praised the Supreme Court’s 5-4 decision in South Dakota v. Wayfair et al. — a ruling that reflects the explosion in online purchases, which totaled $453 billion in the U.S. last year.

“Today’s landmark decision is a win for South Dakota and for Main Street businesses across America that will now have a level playing field and tax fairness,” Jackley said in a statement.

(See related story: Supreme Court: States can force online retailers to collect sales tax)

‘States are losing massive sales tax revenues’

Jackley had told the justices during oral arguments that “states are losing massive sales tax revenues that we need for education, healthcare, and infrastructure” and that “our small businesses on Main Street are being harmed because of the unlevel playing field…  where out-of-state remote sellers are given a price advantage.”

The AG noted that President Donald Trump, 41 state attorneys general, the South Dakota Retailers Association, education groups and numerous businesses had backed the state in its successful bid to overturn the 1992 Quill Corporation v. North Dakota decision. That ruling struck down as unconstitutional state laws requiring businesses to collect sales taxes in states with which they have no “substantial connection.”

Tom Giovanetti — president of the Institute for Policy Innovation, an Irving, Texas, think tank that filed an amicus brief supporting the online retailers in the case — tweeted:

Welcome to taxation without representation, courtesy of the Supreme Court and the #Wayfair decision.

— Tom Giovanetti (@tgiovanetti) June 21, 2018

In a statement, Giovanetti said: “Under today’s SCOTUS decision, over 10,000 tax jurisdictions now have the power to audit every small mom-and-pop business that sell over the internet, including through such platforms as eBay and Etsy. As such, the Court has swung the door wide open for revenue-gluttonous states to aggressively harvest tax revenue from individuals and businesses who have neither voice nor political representation in that state, and now would have no exit other than bowing out of e-commerce altogether.”

But like other critics, Giovanetti said he found solace in the fact that the high court’s decision recognized the vulnerability of small businesses.

Giovanetti called on Congress to enact legislation to protect the economy, online sellers and consumers.

(In a dissent, joined by three other justices, Chief Justice John G. Roberts Jr. agreed that  Congress, not the courts, should decide on taxing online purchases. “Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress,” Roberts wrote.)

National Retail Federation praises decision

The Washington-based National Retail Federation — which argued in an amicus brief that the 1992 Quill decision was outdated, given the surge in growth in the online economy — called the Supreme Court decision a boon to business, both brick-and-mortar stores and online sellers.

“Retailers have  been waiting for this day for more than two decades,” said Matthew Shay, NRF’s president and CEO, in a statement. “The Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well. This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both.”

Shay quoted from the Supreme Court’s majority opinion, in which Justice Anthony M. Kennedy wrote: “It is unfair and unjust to those competitors, both local and out of State, who must remit the tax; to the consumers who pay the tax; and to the States that seek fair enforcement of the sales tax, a tax many States for many years have considered an indispensable source for raising revenue.”

Kennedy said that with the vast expansion in online sales, the 1992 Quill precedent “cannot justify retaining this artificial, anachronistic rule that deprives states of vast revenues from major businesses.”

The case decided Thursday centers on a 2016 South Dakota law requiring most online retailers operating out of other states to pay state sales taxes. (The law exempts online retailers with less than $100,000 in annual sales, or 200 or fewer transactions a year in the state.)

South Dakota had sued online retailers Wayfair, Overstock.com and Newegg Inc. for violating the law. Lower courts, citing as precedent the 1992 Quill decision, ruled in favor of the online retailers, and the state asked the Supreme Court to uphold the law.

Some major online retailers, including Amazon, already collect sales taxes in states where they make online sales but have no physical presence. But many smaller ones do not, and state and local governments say they lose billions in annual sales taxes as a result.

Brick-and-mortar businesses say they suffer an unfair disadvantage competing with online retailers that can offer tax-free purchases, leading to tens of millions in lost revenue.

Boston-based home products company Wayfair said it did not foresee “any noticeable impact” on its business as a result of the decision and praised “the additional clarity provided by the Court’s decision today.”

But Wayfair added in a statement: Wayfair has long supported a legislative solution that would establish a level playing field for brick-and-mortar and online retailers by permitting states to collect sales tax on online sales.”

Newegg, the Whittier, Calif.-based online consumer electronics and gaming company, did not immediately respond to a request for comment.

This article is republished with permission from Talk Media News.