Case likely heading to the United States Supreme Court, experts say
On Thursday, September 14, the Supreme Court of the State of South Dakota ruled that the state cannot force remote retailers to collect and remit sales tax if they do not have nexus in South Dakota. Ironically, the legal loss could end up being a victory for sales tax fairness proponents.
South Dakota Attorney General Marty Jackley will likely appeal the decision to the U.S. Supreme Court, media reports indicate, where there is the potential for the justices to overturn the 1992 Quill Corp. v. North Dakota precedent. Quill currently forbids states from requiring retailers that do not have a store, office, warehouse, or sales agent in the state from collecting and remitting sales tax to that state. Notably, in 2015, Supreme Court Justice Anthony Kennedy welcomed a challenge to reconsider the precedent.
The case before the South Dakota Supreme Court stemmed from a state statute passed in 2016 designed to challenge Quill directly; it requires out-of-state retailers to collect and remit sales tax if they transact more than $100,000 of business in the state or more than 200 sales. While many states have enacted sales and use tax compliance measures, no state has come close to fully recovering the sales tax revenues from online sales lost due to Quill.
In his decision, South Dakota Chief Justice David Gilbertson wrote: “However persuasive the State’s arguments on the merits of revisiting the issue, Quill has not been overruled. Quill remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes.” Gilbertson noted that the South Dakota court would leave it to the U.S. Supreme Court to overrule its own decisions.
Now, Jackley hopes the U.S. Supreme Court will take up the case, as reported by the Washington Post. “Today’s decision paves the way to respectfully request the U.S. Supreme Court to provide that much-needed fairness to save main streets and jobs across South Dakota,” Jackley said in a statement.
Observers say there is indeed a likelihood that the Supreme Court may take Jackley and South Dakota up on the offer. In early 2015, Supreme Court Justice Kennedy suggested that, in the age of online retail, it was time reconsider the pivotal 1992 case, which forbade states from requiring retailers without a physical presence to collect sales tax.
In March 2015, regarding a Colorado use tax law, Justice Kennedy wrote: “Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill… A case questionable even when decided, Quill now harms states to a degree far greater than could have been anticipated earlier.”
With the quick ruling, it is now possible that the U.S. Supreme Court could hear this case during its October 2017 term.