Major oral argument at Supreme Court tomorrow may decide if states can collect billions from online retailers

Many online retailers have a strong advantage over local stores they may not have to pay a 6 plus percent sales tax which the local stores must pay. That means billions of dollars in uncollected revenue for the states and what is being argued as an unfair advantage in a major case being argued before the United States Supreme Court tomorrow. If S.C. decides in favor of the states, it could also affect whistleblowers who reveal the companies who try to evade state sales taxes which they owe. The states, led by South Dakota, are seeking to overturn a 26-year old ruling that exempts many internet companies from collecting billions of dollars in sales taxes. The decision rendered in 1992 says that retailers can be forced to collect the taxes only if they have a physical presence in a state such as a store or a warehouse. The decision could affect Amazon.

Retailers who are battling the states say they would be hit by heavy costs in complying with the rules for thousands of products in thousands of cities. The case before the court involves Wayfair, Overstock and Newegg, three retailers who were sued by South Dakota for not charging sales taxes to customers there, even though they do not have a presence there. South Dakota requires retailers with more than $100,000 in annual sales in the state to pay 4.5% taxes on the purchases. A lot of people are watching this case–from states to online retailers.

The United States, which filed a brief in the action and has asked to argue, says that the states have ample authority to require the online retailers to collect state sales taxes owed by their customers. This is because, says the U.S., the internet retailers have a pervasive and continuous virtual presence in the states where their websites are available. Imposing a sales tax collection on out of state sellers will provide significant benefits to the states, it is argued. The U.S. Census Bureau estimated that in 2017 the retail e-commerce sales totaled more than $452 billion.

The e-commerce retailers argue that it would be too complex and costly to require them to collect sales taxes because of the incredible number of local taxing jurisdictions including cities, towns, counties, parishes transportation districts, and more. In addition, the costs of software to the retailers would be significant. According to the GAO merely using software would be surprisingly expensive. With an estimated 90,000 online retailers, assuming an annual cost of $150,000 each would mean a cost to the retailers of $13.5 billion.

Jeffrey Newman represents whistleblowers.