SEMA eNews Vol. 21, No. 25, June 21, 2018

U.S. Supreme Court Overturns 1992 Internet Sales Tax Decision

By SEMA Washington, D.C., Staff

The U.S. Supreme Court issued a ruling that will now allow states to require internet retailers to collect sales taxes even when they have no physical presence in the state. The court overturned the 1992 “Quill vs. North Dakota” decision, which said that retailers must have a certain level of physical presence (nexus) in a state before that state can force the retailer to collect taxes.

The state of South Dakota successfully argued before the Court that the 1992 decision was obsolete in the e-commerce era. In 2016, South Dakota passed legislation requiring an out-of-state retailer to collect sales taxes, regardless of whether it had a physical presence. The Court upheld the South Dakota law, which includes a small-business exemption for retailers with less than $100,000 in sales. Other states are now expected to begin passing bills similar to the South Dakota law.

The U.S. Supreme Court noted that Congress has always had the authority to enact legislation to authorize collection, but that has not occurred to date. The Court ruling may now spur Congress to establish a single federal standard, including a uniform small-business exemption and limited ability for states to pursue out-of-state audits. Various studies estimate that the potential amount of uncollected state sales taxes may range from $13 to $33 billion.

For more information, contact Daniel Ingber, SEMA managing director, government and legal affairs, at danieli@sema.org.

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