(Background: In 2016, South Dakota adopted a law requiring all businesses with a certain amount of sales in the state to collect sales taxes, regardless of whether the business has a physical presence. The South Dakota Supreme Court ruled today that the law violates prior U.S. Supreme Court precedent, setting up an appeal. South Dakota is trying to get the U.S. Supreme Court to revisit its 1992 ruling in Quill Corp. v. North Dakota, which found that states can only require businesses to collect sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es if they have a physical presence in the state.)
South Dakota lawmakers essentially brought a test case hoping to overturn the Supreme Court’s ruling in Quill. So this ruling is no surprise and doesn’t really change the current landscape. But other states have challenged Quill in the hopes of applying the new sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. revenue to their current budget. This is a risky approach with a case the Supreme Court hasn’t even agreed to hear.
South Dakota only has a state-level sales tax, and unlike most states applies theirs to nearly all services, making it an easier tax to administer. Internet transactions are the only thing they don’t tax. But this issue is much bigger than South Dakota. There are more than 10,000 sales tax jurisdictions nationwide that use different rules for determining what’s taxable and what isn’t. We should not lose sight of this or the need for Congress to be the arbiter of a solution to the online sales tax issue that works for everyone.
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