States Renew the Fight for Sales Tax Fairness

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E-Fairness campaign imageFor years, local brick-and-mortar businesses have faced an uneven playing field where they have to collect sales tax, but their big online competitors do not.

Now, nearly two dozen states are trying to change that.

South Dakota is leading the charge. On May 1, a new state law took effect that requires merchants to collect the state’s sales taxes if their revenue from sales in South Dakota exceeds $100,000 per year, or if they process 200 or more separate transactions a year in the state.

Alabama has followed suit by beginning to enforce an existing law on taxing out-of-state sellers, and Tennessee is considering a rule that would be similar to South Dakota’s.

South Dakota’s and Alabama’s laws are already being challenged in court. In fact, however, that’s the point.

The new laws directly contradict a 1992 U.S. Supreme Court decision, Quill Corporation v. North Dakota, that said that states couldn’t require out-of-state companies to collect sales taxes until Congress passed legislation allowing them to do so.

In the nearly quarter-century since Quill, federal efforts to reform the law have gotten caught in congressional gridlock, and states have been forced to come up with creative stopgaps on their own. Meanwhile, both local businesses and public budgets have suffered.

In March 2015, U.S. Supreme Court Justice Anthony Kennedy signaled another path to online sales tax fairness, when he wrote, “The legal system should find an appropriate case for this court to re-examine Quill.”

Now, states like South Dakota and Alabama are taking him up on it. As Tennessee Revenue Commissioner Richard Roberts told the Times Free Press, “We have to be fair to our local businesses.”

 

Sales tax fairness is a critical issue for independent business. For more on closing the online sales tax loophole, see AIB’s issues page.