On September 14, the Supreme Court of South Dakota upheld a lower court’s ruling that a 2016 state law requiring out-of-state merchants to pay state sales tax on goods and services violated the 1992 U.S. Supreme Court ruling in Quill v. North Dakota. The U.S. Supreme Court will now decide whether to take this case and revisit the previous Quill decision, potentially opening the door for significant new revenue streams for states and counties.
Sales and use taxes are collected by counties as a source of revenue to support essential services, such as local infrastructure, public safety and law enforcement. The amount of uncollected state and local taxes that counties, cities and states could use to provide critical public services will continue to grow as remote sales in the retail marketplace surge. As a result, main street businesses find themselves at a competitive disadvantage because they are shouldering the bulk of collecting and remitting sales taxes. Without the ability to enforce existing sales and use tax laws on remote sales, billions will continue to be lost each year in uncollected state and local taxes.
The Quill decision determined a business must have a physical presence in a state before the state can require it to collect sales taxes. The South Dakota law enacted earlier this year specifically challenged that decision, requiring businesses to collect state sale taxes if they sold more than $100,000 of goods in the state, even if they have no physical presence there. Unsurprisingly, the law was challenged by several retailers and has quickly progressed through a number of courts, culminating in the South Dakota Supreme Court’s decision in September. While Quill did set the precedent for state collection of sales taxes, the Court also determined that Congress ultimately has the authority to regulate interstate commerce and could override the decision through legislation.
However, Congress has not acted on that authority. Earlier this year, bipartisan coalitions in both the U.S. Senate and the U.S. House of Representatives reintroduced two remote sales tax bills: S. 976, the Marketplace Fairness Act (MFA) of 2017, and H.R. 2193, the Remote Transactions Parity Act (RTPA) of 2017. Both bills were previously introduced during the 114th Congress, and the Senate passed MFA in a bipartisan fashion in the 113th Congress. As the legislation remains stalled in Congress, a U.S. Supreme Court decision overturning Quill represents counties’ best chance to access this source of revenue.
Legislation to allow the collection of sales tax on remote sales has been a longstanding priority for NACo. NACo will continue to track all efforts that would allow or prevent counties from collecting sales taxes on remote purchases, to ensure the needs and interests of America’s counties are represented.
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