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The Wall Street Journal reports that the US Supreme Court has agreed to take a case which will finally determine whether individual states can require e-commerce companies to collect sales taxes, even if those companies do not have a physical presence in that state.

The story notes that the case being heard is an appeal by South Dakota, which “has been pushing a test case with the goal of overturning a high-court precedent that limits states’ sales tax collections. If South Dakota prevails, other states would likely begin taxing online and catalog sales from beyond their borders, ending an era in which consumers could save taxes by shopping inside their homes instead of in their local stores.”

In fact, 35 other states support the South Dakota appeal, saying that the way the laws exist now is costing them billions of dollars in tax revenue.

While previously the Supreme Court has made sales tax collection contingent on e-tailers having a physical presence in the state, it also recognized that, as Justice Anthony Kennedy once wrote, “changes in technology and consumer sophistication” meant that the court probably should revisit its ruling in the future.

The defendants in the South Dakota case include Wayfair, Overstock, and Newegg, which have argued that the question is best left to Congress, not the judiciary. Amazon has supported federal legislation to resolve the issue, but these days Amazon has operations in so many states that it makes the court ruling almost irrelevant.
KC's View:
I argued against this for a long time because I wanted the e-commerce business to have time to marinate and mature a bit, but it has been several years since I’ve taken that position. I have no idea of the issue is better resolved by the legislature or the judiciary, but I think that this is going to happen.

By the way … this is another issue made more critical by changes in federal tax law. It seems likely that changes in people’s ability to write off all their state and local taxes is going to have an impact on how much money states have to play with. Getting their hands on this sales tax money will be seen pretty much as a necessity.