The State of South Dakota had its “day in court” on Tuesday when South Dakota Attorney General Marty Jackley argued before the Supreme Court of the United States in South Dakota v. Wayfair, Inc. South Dakota, as with many states that rely heavily upon sales tax for revenue, argued that the state is losing revenue because many online retailers do not collect and remit sales tax. Consumers rarely pay sales tax voluntarily.
Currently, under a decades-old Supreme Court ruling, if a business is shipping a product to a state where it doesn’t have an office, warehouse or other physical presence, it does not have to collect sales tax. This ruling, of course, did not foresee the tremendous growth and impact of internet retail sales. South Dakota estimates that it might lose as much as $50 million in uncollected sales tax from internet sales.
In 2016, South Dakota legislature passed a law designed to challenge the Supreme Court rule. The South Dakota law requires out-of-state sellers who do more than $100,000 of business in the state or more than 200 transactions annually with state residents to collect and turn over sales tax to the state. South Dakota wanted out-of-state retailers to begin collecting the tax and sued Overstock.com, Home Goods, Wayfair and electronics retailer Newegg. The state has conceded in court, however, that it can only win by persuading the Supreme Court to do away with its current physical presence rule.
During the hearing the Supreme Court justices had mixed reactions to the arguments presented by Jackley and other attorneys. Some justices, such as Justices Kennedy, Bader and Forsuch, were sympathetic to the argument that the current system is unfair to traditional businesses that collect sales tax on site, including many small Main Street retailers. However, other justices, including Chief Justice Roberts, seemed inclined to leave the current system in place and uphold the court’s precedents. At this time the Supreme Court is expected to make a ruling in June.
South Dakota Gov. Dennis Daugaard said in a telephone interview after Tuesday’s arguments that he hopes the court will fix the rule, but if it doesn’t, South Dakota will continue to push for action by Congress. The Trump administration, meanwhile, urged the justices to side with South Dakota.