BLOOMINGTON, Ind. -- The U.S. Supreme Court is expected to issue a decision soon in South Dakota v. Wayfair Inc., potentially making it easier for states to collect taxes on online sales.
South Dakota is asking the court to reverse a 1992 decision that found the Constitution's commerce clause barred states from requiring retailers without a physical presence in the state to collect tax on sales to state residents.
Anjanette "Angie" Raymond, an associate professor of business law and ethics in the IU Kelley School of Business, is available to comment.
Raymond said the court may be signaling an intention to revisit other issues related to online selling and other activities, in light of changes brought on by emerging information technologies. Overturning the Quill ruling could lead to some problems, she said.
"First, if the court overrules Quill, it may create a retroactive situation where taxes for already occurring sales are now due in the current tax period in states where there aren’t laws to address this issue,” she said. "Sellers would be faced with the question of whether to seek sales taxes from consumers or absorb those unexpected hits to their bottom line.
"There is also a real burden in collecting taxes, especially for businesses with limited online sales, in general, or only a few sales in a particular state," she said.
Despite their desire to address issues related to growing online activity, the justices may still have questions about the commerce clause issue.
"Congress could in theory act and may choose to create a single sales tax for 'remote' sales," Raymond said. "But the court can do nothing more than signal which option it thinks is best."
If Congress takes up the issue, states undoubtedly will challenge a federal tax, Raymond predicts.
"States would presumably see different taxation rates for remote sellers as a potential advantage and argue it violates federalism for the federal government to step into a state-based area," she said. "Regardless of what the court does, states may seek to legislate in this area based on the decision, and Congress may act. This will create a potential new question for the court, that being what entity has authority to take up the issue."
Raymond can be reached at [email protected], 812-855-3449 (office) or 812-320-0707 (mobile).
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