WASHINGTON, D.C. (McClatchy) — The Supreme Court will hear a multibillion-dollar tax dispute, Tuesday, and decide whether online merchants can be required to collect sales taxes regardless of where they are located.
For online shoppers, the case could mean higher prices, although many large Internet sellers, including Amazon, have already been collecting sales taxes in recent years.
Traditional brick-and-mortar retailers believe the case is about fairness. They have had to collect taxes on all of their sales, while shoppers knew they could often pay less by buying the same products online.
State and local governments see online sales as a source of needed revenue. Last year, the Government Accountability Office estimated these governments were losing $8 billion to $13 billion a year in uncollected sales taxes. A group called the Marketplace Fairness Coalition said the loss was much higher and could be as much as $33 billion a year.
At issue is a Supreme Court precedent from the era when mail-order catalogs were the favored means of shopping from home.
In 1992, the justices ruled the Constitution bars a state from requiring a catalog seller in, say, Maine from collecting the sales taxes owed by a shopper in California. This rule was based in part on the notion if the catalog company in Maine had no “physical presence” in California, it did not use the state’s roads and resources and had no obligation to support it.
But South Dakota and 41 other states, including California, are urging the court to overturn the “physical presence” rule. Their lawyers argued the rule is outdated and unfair in an era of Internet shopping. They will be joined by a lawyer for the Trump administration.
Defenders of the current system say small merchants, like a craft shop or a bookstore, would face an unfair burden if they are required to collect sales taxes for not just states, but for more than 10,000 cities, counties and other taxing jurisdictions across the nation.
The California state sales tax is 7.25 percent, and cities and counties may add to that. Los Angeles County adds 2.25 percent, for a total of 9.5 percent.
In response, South Dakota says it requires out-of-state sellers to collect its 4.5 percent sales tax only if the merchants make more than 200 sales or do more than $100,000 in business in the state.
South Dakota’s lawyers also say that better software has made it easy to calculate the correct sales tax for an online consumer.