On June 21, the U.S. Supreme Court granted states the authority to require out-of-state and online retailers to collect sales tax, in a welcome victory for independent businesses. The decision represents a major victory in a long, hard fought battle for sales tax fairness.
The recent ruling in the case South Dakota v. Wayfair, Inc. overturns a 1992 Supreme Court decision exempting businesses without a physical, in-state presence from collecting state and local sales tax. The earlier decision became particularly consequential as the Internet and e-commerce transformed the U.S. economy. For decades, online retailers received what Justice Anthony Kennedy now calls, in the Court’s latest opinion, “an arbitrary advantage” over their brick-and-mortar competitors.
Many independent retailers and their trade organizations applauded the Court’s decision to overturn its earlier ruling. Jason Patton, owner of Oz Music in Tuscaloosa, Ala., and affiliate of Record Store Day, a network of independent record stores, spoke to the ruling’s direct impact.
“I firmly believe that it’s a huge stride in leveling the playing field. In my record store, the average price point is around $20. I’m not going to say I continually lost customers because of the sales tax, but on higher-ticket items, that tax absolutely matters,” Patton explained in recent coverage of the ruling from The New York Times.
Statements from AIB members stress how important this decision is for independent businesses nationwide.
“Today’s ruling represents a tremendous victory for independent booksellers and for indie retailers throughout the country,” said Oren Teicher, CEO of the American Booksellers Association, in a response to the ruling. “There is simply no way to overstate the importance of the decision handed down by the U.S. Supreme Court. This victory is a testament to the hard work and perseverance of independent booksellers, who began advocating on behalf of sales tax fairness almost two decades ago. Their tireless efforts played a pivotal role in this win for small businesses and e-fairness.”
The Independent Office Products & Furniture Dealers Association praised the decision, as well.
“This is a victory for our Independent Dealers and brick-and-mortar businesses everywhere that have long complained they are put at a disadvantage by having to charge sales taxes while many online competitors do not,” their statement reads.
AIB has been advocating for sales tax fairness for several years. Earlier this spring, AIB organized several of its member organizations to sign on to a “friend of the court” brief calling for the Supreme Court to reverse its earlier stance by upholding the South Dakota law at issue in the case. Enacted in 2015, the law requires internet retailers with an “economic presence” in South Dakota to collect sales tax on orders shipped to residents, even if the retailer lacks a physical location in the state. The law defines “economic presence” as sales of $100,000 or more in South Dakota.
Prior to this court case, AIB advocated for Congressional legislation to level the playing field. In 2013, AIB and its allies campaigned for the Marketplace Fairness Act in Congress, which passed the Senate that year. Subsequent actions, including a successful and visible E-Fairness Now social media campaign and calls for hearings by the House Judiciary Committee, continued to draw attention and support for the issue in Congress.
Independent businesses have also raised public awareness of the issue and called for policy change to address sales tax loopholes through a variety of other grassroots and legislative efforts, including the passage of a series of state laws beginning in 2008 that compelled Amazon to collect sales taxes in a growing number of places.
While the recent Supreme Court ruling is a significant step forward, the fight for e-fairness is not over yet.
Now, with increased clarity from the Supreme Court decision, states have firm legal grounds to develop and implement policies, such as South Dakota’s, that close existing tax loopholes and level the playing field.
Because such policies cannot come soon enough, AIB and its allies will continue urging states to exercise their newfound authority to establish sales tax parity between online and independent businesses.
The full U.S. Supreme Court opinion from South Dakota v. Wayfair, Inc. is available here [PDF]. The amicus brief submitted to the Court and joined by AIB members is available here [PDF]. The AIB members that signed onto this brief were the American Specialty Toy Retailing Association, the Independent Office Products and Furniture Dealers Association, the North American Retail Hardware Associations, and the Running Industry Association. The brief also quotes from an earlier brief submitted by the American Booksellers Association.
Photo of the U.S. Supreme Court Chamber by Ron Coleman, via Flickr.