The law of the land remains a 1992 U.S. Supreme Court case, Quill v. North Dakota. It says that sales tax can only be applied to purchases when the seller has a physical presence (like a store or warehouse) in the buyer’s state.
This isn’t an arbitrary tax loophole, but a practical application of the principle of “no taxation without representation.” The seller, by remitting the tax and being subject to audit, is the legal taxpayer for sales taxes. And so it follows that remote sellers should not be obligated to remit tax funds to another state where they have no political voice.
CEI has written extensively about the practical problems with online retailers calculating and paying taxes in the approximately 10,000 distinct sales tax jurisdictions across the country, all with their own bases, rates, and exemptions. We’ve also laid out what a workable and constitutional solution would look like in the form of an “origin-based” regime.
States wishing to expand their taxing powers outside their borders, turning a blind eye to the constitutional and functional harms, have spent decades fruitlessly lobbying Congress for federal legislation, organizing a doomed project to simplify sales tax bases and rates, and finally just passing their own unconstitutional legislation. Now they may finally have their day in court.
This September, the Supreme Court of South Dakota refused to vacate a judgment from a lower court that struck down that state’s 2016 law requiring out-of-state online retailers who sold more than $100,000 or had more than 200 transactions, to collect and remit sales taxes. This allowed South Dakota to take its appeal to the U.S. Supreme Court in the hopes of overturning Quill.
It’s unclear if the high court will agree to hear the case, let alone if it will affirm Quill’s protection of interstate commerce, or overturn to grant states unprecedented taxing authority. But you can be sure we’ll keep you posted.