Supreme Court Decides Wayfair Online Sales Tax Case
The U.S. Supreme Court today handed down its anticipated decision in South Dakota v. Wayfair. The case challenges South Dakota’s application of its sales tax to internet retailers who sell into South Dakota but have no property or employees in the state. At issue is the case Quill Corp. v. North Dakotafrom 1992, which set the property or employees standard for sales taxes using the Court’s (debated) dormant commerce clause power to restrict state taxation of interstate commerce.
Drumroll…South Dakota won. The Court laid out why South Dakota’s law is no burden to interstate commerce but made clear that more complex or overreaching laws would be. This was not too surprising, as during oral argument the justices expressed such frustration with the issue that it’s easy to see why they wouldn’t want this to be just the first of many cases. Better to articulate the rule well here. (We had filed a brief in the case, in support of neither party, urging the Court to uphold South Dakota’s law but draw a clear line preventing more problematic laws from being held as valid.)
As Justice Kennedy’s opinion states:
That said, South Dakota’s tax system includes several features that appear designed to prevent discrimination against or undue burdens upon interstate commerce. First, the Act applies a safe harbor to those who transact only limited business in South Dakota. Second, the Act ensures that no obligation to remit the sales tax may be applied retroactively. S. B. 106, §5. Third, South Dakota is one of more than 20 States that have adopted the Streamlined Sales and Use Tax Agreement. This system standardizes taxes to reduce administrative and compliance costs: It requires a single, state-level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules. It also provides sellers access to sales tax administration software paid for by the State. Sellers who choose to use such software are immune from audit liability. See App. 26–27. Any remaining claims regarding the application of the Commerce Clause in the absence of Quill and Bellas Hess may be addressed in the first instance on remand.
Read the rest of the story on The Tax Foundation
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I don’t like the solution that the Supreme Court came up with. There are several ways to look at interstate commerce.
First, Interstate Commerce is a federal issue – and any taxes paid should be paid the Federal Government.
Second, the buyer would pay the sales taxes of the state where the seller is located.
Third, the buyer pays ales taxes in the state the buyer is located, requiring the out-of-state seller to collect sales taxes and forward the taxes to the state of the buyer. This means that the state where the seller is located will not collect taxes on sales within its own boundary.
It seems to me, that the second option is the fair option. Every seller would collect state sales taxes only for the state in which they are located. This has the advantage of minimizing the paperwork and administrative burden on the seller.
Of course the first option, where the federal government would collect the sales taxes, makes sense as well since a uniform interstate commerce sales tax could be adopted and paid by the seller along with the sellers income taxes on a quarterly basis.
What do you think?