End of Online Tax Free Purchases?

The U.S. Supreme Court will soon hear arguments in a case challenging whether states have taxing jurisdiction over online purchases made from retailers that do not have a physical presence in a state.  The court announced Feb. 23 that it would hear oral arguments in the South Dakota v. Wayfair case April 17 at 10 a.m.

The case is a direct challenge to the 1992 ruling in Quill Corp. v. North Dakota that prohibits states from imposing sales and use tax collection obligations on vendors lacking an in-state physical presence.  In essence, the question is whether the physical presence test continues to have validity in the age of internet purchases.

The Supreme Court—heeding calls from traditional retailers and dozens of states—granted review Jan. 12 of South Dakota’s contention that Quill is obsolete in the e-commerce era and should be overturned.  In Quill, which involved a mail-order company, the Supreme Court invoked the so-called dormant commerce clause, a judge-created legal doctrine that bars states from interfering with interstate commerce unless authorized by Congress. The court said that clause prohibited states from imposing sales and use tax collection obligations on vendors without a physical presence in-state.

QuillState governments are desperate to find another source of revenue and numerous briefs filed with the court by states, municipalities, and traditional retailers urge that be overturned and that it is unfair for online retailers to be exempt from state and local sales taxes.

A decision in the case is expected in June.