South Dakota sales tax case has ripple effect on US e-commerce
A recent South Dakota court ruling exempting certain online sellers such as Amazon from charging sales tax to buyers who are residents of the state may cause broader changes for US e-commerce sales tax laws.
This week the South Dakota Supreme Court ruled against a 2016 state law that required online merchants to charge sales tax when they have sales over $100,000 or 200 transactions with state residents. The court said South Dakota cannot require out of state sellers to charge sales tax.
As most e-commerce sellers are out of state from South Dakota, the ruling creates a void for sales tax income for the state and potentially unfair price competition for in-state businesses. It also follows an older law that said online sellers only had to collect sales tax from residents in states where they had a physical presence such as a store, office or warehouse.
In the face of this decision, the National Retail Federation (NRF), the largest retail trade organization in the world, quickly began lobbying Congress to change sales tax laws.
As it currently stands, the decision affects local South Dakota retailers whose prices will be higher than e-commerce retailers. Amazon, for example, does not have a physical presence in the state and thus would not have to collect sales tax.
NRF Senior Vice President for Government Relations David French said, “It’s time for Congress to pass a law that recognizes the evolution in the retail industry over the past two-and-half decades and say that online sellers should no longer be given an unfair advantage over Main Street merchants."
NRF anticipates South Dakota merchants appealing the decision to the US Supreme Court. The organization is hopeful that the currently pending Remote Transactions Parity Act bill will pass, in order to avoid the case having to be decided by the high court.
The pending legislation would protect small businesses by requiring sales tax to be collected from online sales regardless of whether the seller has a physical presence in the buyer's state.
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