The Supreme Court Makes A Federal Case Out Of South Dakota's Inability To Collect Taxes From Its Residents And Thus A Big Mess

from the aereo-for-ecommerce dept

In some ways the Supreme Court’s decision last week in South Dakota v. Wayfair may seem like a small thing: it simply overturned an earlier decision, Quill Corp v. North Dakota, which had concluded that states could not impose requirements to collect sales tax on businesses with no physical presence in the state. But in dispensing with that rule, the decision invited broader effects that may not be so small, thanks to the alarming reasoning the Court used to justify it.

The Court was prompted to reverse its earlier decision ? something that the Supreme Court does but rarely, thanks to the principle of stare decisis that ordinarily discourages the Court from messing with an earlier precedent ? for a few reasons. In particular it was concerned that Internet businesses without a physical presence in the state had an advantage over those with one [p.12-13], and it accepted South Dakota’s claims that it was losing out on millions of dollars in sales tax revenue when South Dakotans bought things from out-of-state Internet businesses who were not collecting the sales taxes that normally would have been owed [p.2].

These assumptions, if true, would raise reasonable policy concerns. But even if they were valid worries, it doesn’t follow that the Supreme Court should be the organ of government to address them, especially not when its doing so threatens to create additional policy concerns of its own.

First, South Dakota may be heavily dependent on sales tax to generate revenue, but that’s its choice. If consumption taxes turn out to be an inadequate way of filling its coffers, it could choose to impose other forms of taxation, like an income tax, as many other states have. It is not dependent on the United States Supreme Court to help it balance its budget.

Second, like other states, South Dakota requires its residents to independently submit to the state the sales tax that would have been collected, had they bought their goods from an Internet business with a physical presence there. (“If for some reason the sales tax is not remitted by the seller, then instate consumers are separately responsible for paying a use tax at the same rate.” [p.2]). The Court may have been correct in observing that enforcing these sorts of payment requirements may be difficult [p.2], but just because it is difficult does not mean that it should fall to the United States Supreme Court to relieve the state of its enforcement burden ? especially not an enforcement burden against parties over whom the state already had undisputed jurisdictional reach. This case essentially seems to boil down to South Dakota complaining, “We can’t make our residents, who are clearly subject to our laws, pay their taxes, so please make sure that out-of-state residents, who are not clearly subject to our laws, do instead.” And the court was amenable to this plea. [p.13]

As for whether the physical presence rule truly gave an advantage to out-of-state businesses, if the state could manage to get its residents to pay the taxes they owe the answer would be no, since any price advantage an out-of-state business could offer would have been negated by the subsequent payment obligation. But the problem with the Supreme Court having now changed the rule is that it’s placed its thumb firmly on the other side of the scale and disadvantaged out-of-state businesses in favor of those with a physical presence.

In terms of sales tax collection, in and of itself it’s no small task. States rarely have one tax rate applicable to the whole state, or to all types of goods. True, as the Court notes, South Dakota “is one of more than 20 States that have adopted the Streamlined Sales and Use Tax Agreement.”

This system standardizes taxes to reduce administrative and compliance costs: It requires a single, state level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules. It also provides sellers access to sales tax administration software paid for by the State. Sellers who choose to use such software are immune from audit liability. [p.23]

Such an agreement may certainly aid in minimizing compliance costs. So might the reasonably-priced software that the Court glibly assumes may eventually “make it easier for small businesses to cope with these problems.” [p.21]. But in the here and now, compliance is still not so simple. This decision will still reach the other 30 states that have not adopted the Streamlined Sales and Use Tax Agreement, and figuring out how to comply will be more feasible for some businesses than others. Larger companies, for instance, will have more resources to manage complex compliance requirements. Companies large enough, or local enough, to have a presence in these states will also be more familiar with the state and its compliance requirements generally, since they will need to comply with the state’s other laws as well.

Which leads to a more significant question raised by this decision, whose holding won’t be confined to sales tax collection: what about these other state laws? Per the logic of the decision, can states impose other compliance obligations on Internet businesses, in addition to tax collection ones? As we’ve seen in recent discussions around Section 230, including in the cases involving Airbnb/Homeaway and Armslist, states love to apply local law to the Internet. In fact, even before the Internet states liked to impose local law whenever they could. The “long-arm” reach of states to impose their regulatory power on out-of-state parties has traditionally been limited by the requirement that the foreign party at least have some minimum contact with the state before they can be exposed to its jurisdiction. Which is why the physical presence rule made sense: being physically there suggested there was a significant enough contact between the party being regulated and the state doing the regulating. It also seemed more fair: in-state companies will also likely have in-state employees able to wield political pressure on the state government if the laws it passes to apply to their employers starts threatening their employment. Whereas out-of-state companies have no such political leverage to wield over the regulators they are nonetheless beholden to.

What the Court seems to be saying now is that lesser contact with a state than physical presence may be sufficient to establish minimum contact. In and of itself, such an assertion may not be controversial, and if the decision’s rationale had been focused on those indicia it might not be so disquieting. In terms of the South Dakota taxation law itself, the law does incorporate some limitations so that it won’t apply to Internet businesses with only incidental connections to South Dakota.

The Act applies only to sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State.”[p.3]

But the Court is not specific as to what sort of lesser contact will be sufficient to subject an Internet business to state jurisdiction for taxation or otherwise, and it is going to be really expensive for out-of-state Internet businesses to find out.

Furthermore, the hostility that the Court showed to these out-of-state businesses is worrying. First, it is unjustifiably dismissive to the utility of the physical presence requirement.

The argument, moreover, that the physical presence rule is clear and easy to apply is unsound. Attempts to apply the physical presence rule to online retail sales are proving unworkable. States are already confronting the complexities of defining physical presence in the Cyber Age. For example, Massachusetts proposed a regulation that would have defined physical presence to include making apps available to be downloaded by in-state residents and placing cookies on in-state residents? web browsers. Ohio recently adopted a similar standard. Some States have enacted so-called ?click through? nexus statutes, which define nexus to include out-of-state sellers that contract with in-state residents who refer customers for compensation. Others still, like Colorado, have imposed notice and reporting requirements on out-of-state retailers that fall just short of actually collecting and remitting the tax. Statutes of this sort are likely to embroil courts in technical and arbitrary disputes about what counts as physical presence. [p. 19-20]

Of course, far from impugning the physical presence rule, these examples demonstrate the wisdom of it, because in all the examples described any dispute that might arise would arise because the states are trying to target businesses that aren’t actually physically present in their states.

In fact, in general the Court seems to have an uneasy notion of what constitutes physical presence by an Internet business:

For example, a company with a website accessible in South Dakota may be said to have a physical presence in the State via the customers? computers. A website may leave cookies saved to the customers? hard drives, or customers may download the company?s app onto their phones. Or a company may lease data storage that is permanently, or even occasionally, located in South Dakota. Cf. United States v. Microsoft Corp., 584 U. S. ___ (2018). [p.15]

The Court also cannot imagine how limiting a company’s physical presence might be of value to it:

But the administrative costs of compliance, especially in the modern economy with its Internet technology, are largely unrelated to whether a company happens to have a physical presence in a State. For example, a business with one salesperson in each State must collect sales taxes in every jurisdiction in which goods are delivered; but a business with 500 salespersons in one central location and a website accessible in every State need not collect sales taxes on otherwise identical nationwide sales. [p. 12]

Worse, to the extent that the Court can imagine why a 500-person company might choose not to have boots on the ground in every state where it might happen to have an online customer, it is inexplicably hostile:

In effect, Quill has come to serve as a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a State?s consumers?something that has become easier and more prevalent as technology has advanced. [p. 13]

Later it in the decision the Court further describes Quill as allowing out-of-state companies to aid and abet customers in “evad[ing] a lawful tax that unfairly shifts to those consumers who buy from their competitors with a physical presence that satisfies Quill?even one warehouse or one salesperson?an increased share of the taxes.” [p. 17]

What is concerning is that in using these pejorative assessments the Court is essentially declaring, “How dare you do something legal to avoid liability.” Which is sadly an admonition we’ve heard the Court make before in trying to substantiate a questionable holding in another case: Aereo.

As the Court continues, the comparison with Aereo becomes even more apt:

“Distortions caused by the desire of businesses to avoid tax collection mean that the market may currently lack storefronts, distribution points, and employment centers that otherwise would be efficient or desirable.” [p. 13]

In other words, the Court has concluded, “Our jurisdictional rule is deterring investment in the state, so therefore it’s a bad rule.”

This sort of contorted reasoning is exactly what happened in Aereo, where the Court looked at who was making money, unilaterally decided it was the wrong people, and then tied itself in knots to write new law, indifferent to how much settled precedent it displaced or the full extent of its likely effects, in order to justify reallocating the financial gains.

Then, as now, it was a decision predicated on a series of questionable assumptions. We can only hope that this latest result won’t be as seriously catastrophic for online innovation as Aereo has been.

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Comments on “The Supreme Court Makes A Federal Case Out Of South Dakota's Inability To Collect Taxes From Its Residents And Thus A Big Mess”

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Anonymous Coward says:

Just how many jurisdictions would a company have to deal within the US? Will it be every state, county and city? What happens when this goes world wide?

While following the regulations of one jurisdiction is simple, when that becomes thousands, and several may be relevant to a single sale, only large corporations will be the only ones that can do business on the Internet.

Anonymous Coward says:

Re: Re: Re:

Amazon has not fully abandoned Australia, they still sell the things that they are the retailer for. What they are not selling is all the items for which they were the shop window and payment processor for other vendors.

Collecting the tax on what they sell is one problem, doing so for other vendors where they do not control the product infomation is a much more complex problem.

tdlawyer (profile) says:

Re: Re:

There are 45 states with sales and use tax. For most of those states, individual counties and cities within those counties may add additional sales tax on top of the state (or county) rate.

And states define goods differently, or have different exemptions (e.g., prepared foods are often taxed while unprepared foods are not taxed).

The result is that there are over 10,000 sales tax jurisdictions in the United States.

Not that this case limits its effect to United States businesses. Technically anyone selling anything from anywhere that is shipped into a state would have to worry about this ruling and the 10,000 tax jurisdictions mentioned above.

Anonymous Coward says:

Re: Re: Re:

You for got to add to that US Federal import tax.

For example, say a supplier of a unique must have device for some very limited demand specific need is located in Japan, Canada or the EU.

Now that supplier would be responsible for taxes from all 10,000 tax jurisdictions plus the import tax.

It may easier and cheaper to simply not sell the device than pay the administrative cost associated with ascertaining which jusdrictions’s taxes apply and the logistic of paying the taxes.

Cogburn says:


Jurisdiction is the key legal point.

No level of American government has ANY legal authority to impose laws or taxes on persons/businesses outside its formal geographic boundaries (jurisdiction).

Also, taxing out-of-state businesses is Taxation-Without-Representation. Those out-of-state businessmen cannot vote in South Dakota, nor do they directly benefit from South Dakota government spending.

Despite popular belief, sales taxes are actually paid by the seller, not the buyer.

Commerce Clause in US Constitution was specifically intended to prevent just this type of impediment to interstate commerce — harmful taxes/tariffs on goods imported from other states.

This was a horrible Supreme Court decision that will take decades to repair, while causing massive turmoil. It was a close split decision, but the Supremes majority obviously wanted to warn/threaten the serfs that the taxing power of American government is absolute.

TRX (profile) says:

Re: Re:

Just how many jurisdictions would a company have to deal within the US?

I maintain some business software for a client in Arkansas. Just in this state there are the state, 75 counties, and several dozen cities as “tax-collecting authorities”, each one which has to be separately considered when figuring sales tax…

For extra fun, note that just because someone might have an address in Hooterville, doesn’t mean they’re actually in Hooterville’s city limits. In a number of cases, they’re not even in the same county. And then there are the towns that spread across county lines, and of course Texarkana, which sprawls across the state line…

The state tax goomers normally go by ZIP code, which the USPS carefully explains is a delivery code, not a location designation… last time my client got audited, the tax goomers found dozens of “errors” in their tax database. The client didn’t even call me; they just whipped out the printout I’d made for them and pointed out where the state was in error… every single time, my client’s database was correct according to the DFA’s regulations.

Now, add 49 more states, the territories, and the protectorates… what I figure will happen is, vendors will add as much “tax” as they figure they can get away with, remit as little as possible to the taxing authorities as possible, and pocket the difference as profit. The only losers are the customers, and it’s not like they can do anything about it, right?

JoeCool (profile) says:

Re: Re: Re:

For extra fun, note that just because someone might have an address in Hooterville, doesn’t mean they’re actually in Hooterville’s city limits.

Excellent point. I moved to where I am currently because it’s just outside the city, and the local grocery store is too, so I don’t pay sales tax on purchases there. Doesn’t save a lot, but over the course of a year, it adds up. But if you went by my ADDRESS, you’d assume I’d have to pay sales tax. This will really be an issue with online purchases… and I do a lot of online purchases.

Anonymous Coward says:

Re: Re: I smell a business opportunity.

Good luck with that as it involves keeping track of 10,000 plus tax rates for every item that can be sold, as the taxes can vary per item by tax authority. Tracking tax rates includes tracking a zero rate for places hat do not charge tax on items, so that is a lot more than 10,000 entries in the database for each item that can be sold.

Anonymous Coward says:

Re: Re: I smell a business opportunity.

In Nevada and Alaska.

Every company with more than 1M in in annual purchases is probably considering moving their incorporation to a state with no sales tax. It would be really good to be in the registered agent business right now. Companies will soon be buying EVERYTHING, from pencils to concrete, to steel, online, so they can claim zero sales tax.

The FCC did this sort of thing with telecom tarriffs decades ago. Whole telecoms rose and fell by playing screw the next guy on the tarriff regs. Companies would find ways to coin shave the regs using new technologies, and then the FCC would rule. Then Sombody would have to scratch a million bucks off their income statement, while somebody else laughed. This was actually the driving economic impetus for the technical development of VOIP, BTW.

It is important to note what SCOTUS just created. They alacazamed an interstate tarriff system out of thin air.

A brief example: sales tax on toll road tokens (digital or otherwise) is now going up to 500% with rebates to in-state buyers. Yep. It is now a thousand bucks to drive through New Jersey (unless you’re from there). So if your a trucking company, guess what? You better incorporate in NJ. Because if you don’t your going to spend an extra 100k$ a year on sales tax. Much cheaper to pay the couple of grand in registered agent fees to state cronies every year.

Somewhere some clerk at SCOTUS is saying: “er wut?”

This is what happens when you anthropomorphize corporations, without have a solid understanding of how corporate finance actually works. What SCOTUS is saying when it says that Corporations speak, is saying that they are sooooo smart they can reasonably control the machinations of corporate avarice on a national scale to such an extent it doesn’t do irreperable harm to the union. Of course CEO’s don’t talk about that, because when they do they laugh so hard they piss their pants.

If you give a business the ability to externalize an expense, it will. That is what CEO’s DO for a living. So SCOTUS just created a multibillion dollar football, and flipped a coin in the middle of 50 rabid drooling state legislatures. God knows where this is going to end.

Javarod (profile) says:

Re: Re:

That’s one of the issues I have here. Others are that they shouldn’t have to pay full state tax, say maybe 50%? Sellers below a certain threshold shouldn’t be responsible for collecting, although a collective entity that they work through (think Amazon marketplace or Etsy) might be required to do so. And sellers only have to pay/collect state and federal sales tax (yes, I know it doesn’t exist… yet).

compujas (profile) says:


How exactly does the state enforce its sales tax laws on out-of-state companies? If a company with no physical presence in the state decides to ignore the law and refuses to collect and remit sales tax to the state, how does that state do anything about it? They have no jurisdiction to go and arrest anyone at the company as they are outside of their state. I suppose they could sue them but the company has no presence in the state and therefore nothing the state can hold over them. I wouldn’t imagine that they could use the federal government to arrest them as there is no federal law that they are breaking. So what do they do? Is this now a ruling and subsequent state law with no teeth? Is there a word for laws that are universally ignored thus nullifying them?

discordian_eris (profile) says:

Re: Re: Re: Enforcement

The states taxation department will have jurisdiction over just about everyone doing business in a state. Instead of making things easier or simpler or even just showing basic logic, the court has decided that mayhem is the preferred state of affairs.

So yes, if you fall under the statute in question, the taxman cometh. No lube for you

Anon says:

Re: Enforcement

That’s easy; much as I see for Canada, everything coming INTO the USA goes through a customs checkpoint and the duty can be assessed either to the sender, or more usually, as a delivery charge to the receiver. Let customs handle the details of whether the taxes have been assessed and paid, and see how fast the feds decide this is bad law…

(Canada, for example, has 10 provinces; Alberta has no sales tax; several of the others have a “harmonized” tax, where the federal (GST) tax and provincial tax cover the same goods, and charged at a single rate. IIRC, the feds refuse to collect provincial taxes except the harmonized ones. Plus, there are exemption amounts for personal imports – $400 each after 48 hours, $50 anytime; hence, frequent shopping trips to the US.)

discordian_eris (profile) says:

Then, as now, it was a decision predicated on a series of questionable assumptions. We can only hope that this latest result won’t be as seriously catastrophic for online innovation as Aereo has been.

People generally see what they look for, and hear what they listen for. The justices found what they wanted in this case.

Unfortunately they seem to have done their navel gazing from the inside – again. They make it very hard to take them seriously when decisions like this fail logic 101 and are pure sophistry from start to finish. Five ‘conservative’ judges seem to have done a good job in legislating from the bench. Something they claim is verboten and possibly unconstitutional, separation of powers and all that.

This can, and should have been dealt with by Congress, who in their infinite ‘wisdom’ decided that the status quo was fine with them. The Supremes ditching Quill, and their ‘reasons’ for doing so is the worst form of twisted logic I have seen from them in quite a while. I think that if they had turned in assignments in law school that followed this type of reasoning they would have flunked out. Seriously, a fucking cookie in your browser gives you a physical presence? I guess we should just be glad that they didn’t claim that the internet tubes established a substantial nexus with the taxing State.

My real question is, is this resulting from stupidity, ignorance, mendacity or perfidy; or all of the above?

ldd (profile) says:

These assumptions, if true, would raise reasonable policy concerns. But even if they were valid worries, it doesn’t follow that the Supreme Court should be the organ of government to address them, especially not when its doing so threatens to create additional policy concerns of its own.

The majority decision actually agrees with you. South Dakota v. Wayfair holds that Quill Corp v. North Dakota effectively made the Supreme Court the organ of government that addressed the problem of collecting sale taxes on sales to state residents from out-of-state sellers. The decision in Quill made it so that no legislature in the US could require that out-of-state sellers collect sales taxes. In order to let legislatures decide the question, and not the Supreme Court, the Supreme Court has to overturn its earlier decision. South Dakota v. Wayfair does not mandate that out-of-state sellers collect taxes. It leaves it to the legislatures to decide whether or not out-of-state sellers must collect these taxes. Now the legislatures have to figure it out.

That Anonymous Coward (profile) says:

Wouldn’t a much better solution have been to ask online retailers to submit monthly reports of sales into their state, and then did the very hard thing of enforcing the law on their citizens? But that isn’t very popular with the residents of that state, who have ignored the law since the early days of the internet. Pity that so many people break the law & nothing happens to them…

I look forward to every tv commerical sold product, QVC, HSN to have to start collecting taxes in every state that demands it. I expect to see them decide its easier to not service these states who demand those who get nothing in return from the services the state offers foot the bill. I wonder what the tax on paying for membership in AARP comes out too… those guys really enjoy sending letters to legislators reminding them that pissing off old folks is a bad idea.

Its too hard, just make those rich tech companies fix it for us… this is the solution to everything these days.

Of course, Congress could avoid this huge fustercluck by doing something smart. Create a single internet tax rate to be paid to states. Something low like 2-4%, its a dirty compromise but its dirty to demand companies pay states where they have no real physical nexus.

The real root of this problem is legislators who did popular things that ended up creating shortfalls in budgets. Now that things are falling apart & they need funding its not popular to make the citizens who benefit from it pay for it.

Everyone wants nice things…. as long as someone else foots the bill.

Anonymous Coward says:

Re: Re: Re:

Income tax is flawed for this purpose. Income tax makes some sense when the collecting jurisdiction is also the jurisdiction that would settle controversies relating to the income (e.g. if an employer tries to skip paying wages, and the state steps in to require that the wage must be paid, then it makes sense that the state gets a cut of the income).

Anonymous Coward says:

Re: Re: Re: Re:

Income tax (particularly a progressive one) has advantages, but can also be quite complex for people who earn irregularly (freelancers, consultants, self-employed etc). A sales tax taxes consumption, which makes it broader based. While we can argue about how progressive or regressive it may be, levying it on the seller at least means there is an auditable trail (excluding the black market) and is relatively simple (for those complaining about “10k jurisdictions”, once upon a time companies had to suck it up and pay it without the benefit of computers. It isn’t harder now)

Comboman says:

Not that hard

This article (and many of the comments) act like charging a different tax rate for each state is some sort of insurmountable obstacle or onerous burden. In the age of computers, it is a few lines of extra code. If you want proof, go to the Canadian version of Amazon ( and see that they have no problem dealing with both a federal and provincial sales tax which varies across the country both in rate and in which items are exempted.

Look, no one enjoys paying taxes, but that’s what pays for vital public services like education. Give the states a break.

Anonymous Coward says:

Re: Not that hard

As somebody pointed out in the reply to my first comment, are at least 10,000 tax jurisdictions in the US alone, which is slightly more that the dozen or so provinces in Canada. Further each jurisdiction has rate that vary dependent on the item being sold, and these differ between jurisdictions. That means a table of 10,000 plus entries per item to decide what taxes are collected. It also means keeping track of 10,000 plus accounts to remit the collected tax to.

That is no longer a few lines of code, but a major database component, with all the maintenance effort that that entails, along with the offices full of people to deal with keeping it up to date, and sorting out how an item should be taxed in every jurisdiction.

rk57957 (profile) says:

Re: Not that hard .. if someone else does it.

This article (and many of the comments) act like charging a different tax rate for each state is some sort of insurmountable obstacle or onerous burden.

It kind of is onerous. In Texas alone you have the state sales tax rate of 6.25%. Then you have cities and counties together can add an additional 2%. There are 254 counties and 961 cities. In the state alone that gives you 1,216 taxing jurisdictions. Since most of them are going to charge the max allowed you’re collecting the full 8.25% which is easy, it’s the disbursement that starts to be a royal pain in the ass.

It’s easy for Amazon to do … everyone else, not so much.

Andrew D. Todd (user link) says:

Re: Re: But You Need Amazon Anyway

Broadly speaking, on the internet, it is impossible to inspect merchandise before buying. In a state of nature, if you buy, say, a hard disk on the internet, from an unknown party, they take your money, and send you a picture of a hard disk, and you have no remedy. In practice, one needs intermediaries, such as Amazon or E-Bay. Furthermore, the measures which E-Bay takes to immunize itself against sales tax tend to make it an untrustworthy intermediary. It is too easy to sell the same object to ten different people on E-Bay, collect money from all of them, and deliver to none. As it stands, Amazon barely manages to keep fraud under control, down to a level of five percent or so. To improve its fraud-prevention, Amazon will have to bring more merchandise into its own warehouses, and to get enough robots to do so at a reasonable cost.

I am fairly meticulous about keeping proper records and paying state use tax, and wind up paying something under fifty dollars a year. I find that when I place an Amazon order, part of it is supplied from Amazon warehouses, and sales tax is collected on this. The other part of the order is “laid off” to third-party vendors, and sales tax may or may not be collected on that. In practice, a high proportion of the laid-off items seem to come from either Costco or Wal-Mart/Sam’s Club, because they were temporarily of stock at Amazon. .Wal-Mart has “loci” practically everywhere. Costco operates in many states A small business does not have comparative advantage in getting manufactured goods from the manufacturer. A small business is good at getting used goods, just as a rat is efficient at foraging for small crumbs. However, used goods usually sell for low prices.

In light of the decision, Amazon will just have to collect sales tax on everything, as if it had been supplied from Amazon’s own warehouses. Since Amazon has a considered policy of moving all possible merchandise into its own warehouses anyway, relying on robots to counter a third-party vendor’s possibly lower labor costs, this will simply accentuate that tendency.

A reasonable sort of small businessman, say a used book-dealer, will have a feel for what he can sell locally, and what he can’t. For the stuff which cannot be sold locally, he would log onto Amazon, enter the tittles, etc, and print off adhesive labels. Each book would get taped up in a plastic bag, and a label put on the outside, and a box containing twenty or fifty books would get shipped off to Amazon. With proper arrangements, the postage need not cost more than ten cents per book. Amazon would open the box, scan the label of each wrapped book, and stick it in a designated slot of one of Amazon’s famous moving shelves.. Amazon would then be able to assemble “economic orders” of ten or twenty books for a given customer.

The decision is slightly flawed, from a technical standpoint. It merely observes that South Dakota does adhere to the Streamlined Sales Tax, and that it does have small-business exemptions, and does not explicitly say that these are required to collect sales tax from out of state. I doubt that this is an issue– faced with actual money to be picked up, the state legislatures will probably conform– exactly– to the Supreme Court opinion, including adopting the Streamlined Sales Tax. Why give a federal judge a pretext to rule the state tax law unconstitutional?

The present case does not involve someone desperately trying to prop up old-fashioned bricks-and-mortar stores. South Dakota, rather than some other state, is in the case because it does not have an income tax. Income taxes are generally progressive. You pay a higher rate if you are rich. Sales taxes are generally regressive. They tend to cover limited ranges of items. Rich people tend to spend their money on things like out-of-state college tuition, which are not taxable. Amazon is not in the case, because Amazon stresses fast delivery, and needs to have a warehouse within a hundred miles or so of every customer.

Anonymous Coward says:

Re: Not that hard

I support this view.

I also acknowledge the added burden to small business.

Then I see the opportunity for other small businesses to step in and fill the void, perhaps not turbotax other other players that can plug in create a tax program.

Then again I wonder, how do small businesses function if they don’t have a CPA that should be knowledgeable on taxes?

At the end of the day, small business has been around before the internet and will be around long after they get taxed on products THEY WOULD NOT HAVE SOLD without the internet…

Anonymous Coward says:

Re: Re: Not that hard

You do not understand scale. Just how many people will a small business have to employ to deal with 10,000 plus tax authorities? Dealing that many tax authorities will require extra people to deal with the mail from them, extra costs in having audits carried out, as there are all these extra tax accounts to be looked at. Extra people to keep all those tax rules up to date. Extra office space to house all that staff, and managers to look after them.

Anonymous Coward says:

Re: Re: Re: Not that hard

It’s not a fault of this ruling that tax structure is the way it is. The court ruled based on existing laws and regulation. From a court’s perspective, it’s not their function to write the tax code, it’s their function to interpret.

What isn’t right is that multinational corporations lobbied, paid for, or through a mixture of lawyers and lobbies wrote laws and regulations that screw over small business and you and me.

This isn’t a problem to be solved on a local level. As suggested above, standardized tax for online purchase is just one way to view fairness. Perhaps a VAT tax to replace all sales tax? Ingenuity, creative thinking and replacing politicians and their corporate parties would go a long way.

Another way to gauge fairness is from the states or county or cities view that online tax rulings impacts their ability to keeps roads and bridges and parks and social systems and education facilities, et. functioning. Local government will have to hire and install new tax systems too.

Problem being those in power in the 1980’s broke the tax codes and the same groups are still running the government only now in more key positions with more control.

It’s not taxes that are the problem, it’s those creating the tax rules have been rewarding themselves out of our collective pockets.

Yes Amazon isn’t impacted much based on their scale. Yes smaller business and those creating startups don’t have the same opportunity.

It’s based on those creating the legislation to favor themselves and the groups that they support. This is the legacy of Margret Thatcher and Ronald Reagan and those that supported (Europeon term) Neo-Liberal economics and those same people are in charge of all three branches of government.

Don’t like this, want to help small business and your own tax or financial concerns. VOTE!

James Burkhardt (profile) says:

Re: Re: Not that hard

I have a small business. I had a goal of making something like $500/month by the end of the year creating props for cosplay and theater. I sell goods online.

I don’t need a CPA. I learned the laws of my state, and since my volume is low, I can easily fill out the paperwork to file and remit Sales taxes. It really only works because I can remit all my taxes to one authority here in CA.

In my day job I file Sales tax reports for a medium business. The CPA doesn’t handle that job. I do. A CPA is overkill for such a day to day accounting task.

SMall businesses existed before the internet. In general they were only subject to 1 tax jurisdictions. Only subject to sales tax in the location of their place of business. Mail order businesses were big businesses, not small.

If I had to deal with 50 tax authorities representing 10,000 tax jurisdictions, it would be impossible in either job. Just keeping CA tax tables updated is next to impossible.

Anonymous Coward says:

Re: Not that hard

"In the age of computers, it is a few lines of extra code."

As others have pointed out, it’s more than a "few" lines. And it has to be maintained every time a tax is passed or adjusted anywhere in the country. And what happens when it turns out that an address that says City X actually isn’t in the county that City X is in the center of, because zip codes are so weird? Is the state going to graciously forgive the error? Or are they going to assess not only the tax but fines and interest?

Sure, you can buy software instead of coding it yourself, but again, what if that software is wrong? And what if it doesn’t integrate with your inventory management software? And even in the best case it’s an ongoing cost instead of a one-time purchase; you’re pretty much renting this type of program instead of buying it, because of the constant need to maintain it.

And it’s even worse when you consider the details of various states’ taxes. Is yarn taxable? If you’re shipping it to New Jersey, that depends on whether it’s sweater yarn or art project yarn. What about deodorant? If you’re shipping to Texas, that depends on whether it contains an antiperspirant. What about candy bars? If your customer in is Illinois, the Twix bar has a different tax rate than the Snickers bar. It’s hard enough to have to keep track of idiosyncrasies in your own state’s taxes; it’s even harder if your business is in Delaware and you have to keep track of whether or not San Fransisco has decided to pass a sugar tax and whether or not there’s currently a temporary injunction while the various court rule on whether it’s legal.

And frankly, regardless of the burden that is or isn’t present, it’s up to Congress to pass a law allowing this if they so choose. As of yet, they have not so chosen. Stare decisis should prevent SCOTUS from overturning its previous decision when Congress has the power to overrule the decision at its whim anyway.

Anonymous Coward says:

Re: Re: Not that hard

And what happens when it turns out that an address that says City X actually isn’t in the county that City X is in the center of, because zip codes are so weird?

It’s not "weirdness", it’s that ZIP codes are being abused for purposes they weren’t designed for. They were designed to route mail. From a ZIP code, the USPS can accurately decide what post office to send it to. They can’t tell you the recipient’s tax rate, because that’s not relevant to them (or wasn’t… could South Dakota use this ruling to make Montana businesses collect sales taxes from cross-border shoppers?)

Anonymous Coward says:

Re: Not that hard

If you want proof, go to the Canadian version of Amazon ( and see that they have no problem dealing with both a federal and provincial sales tax which varies across the country both in rate and in which items are exempted.

Amazon has more than "a few lines of code", and Canada only has 10 sales tax regions (no municipal/city sales taxes; VAT in Europe is similar, with about 30 regions).

carlb (profile) says:

Re: Re: Not that hard

Are you sure that Canada only has ten tax jurisdictions? I’m seeing an increase in the number of municipalities charging what amounts to a tax on the overnight rental of hotel/motel rooms – on the pretext that the money will be used to fund local tourism promotions. If I were AirBnB or one of the other homestay networks, I’d be reaching for the acetaminophen/paracetemol right about now…

Anonymous Coward says:

Re: Re: Re: Not that hard

Are you sure that Canada only has ten tax jurisdictions?

No, it’s ten sales tax jurisdictions. I’m not counting services like rentals, which don’t really affect online sellers (a hotel is in a fixed location; they don’t have to know the tax rules of the whole country).

The territories and Alberta are all federal-GST-only (again excluding hotels etc.). The other 9 provinces are HST or GST+PST. HST and GST use very similar rules everywhere; the provinces with PST will likely each have their own crazy exceptions.

Anonymous Coward says:

Taxation without representation and fairness.

Wasn’t the idea that taxation without representation was inherently unfair one of the reasons for the American revolution? So, in the interest of fairness, shouldn’t the Supreme Court now also allow people in other states subject to South Dakota’s taxes also vote in it’s elections?

AAC$ says:

Re: Re: Tax is on Sellers

‘The people being taxed are the buyers”


Any retail sales tax is ultimately paid by the seller !!

A sales tax merely raises the ‘total’ price of the item being sold. If sellers could so easily raise their prices (…say the 7% sales tax equivalent) — they would have done so already and pocketed that easy money themselves. BUT higher prices lower customer demand and sales volume is reduced.

Basic economic laws of Supply & Demand & Prices do not change just because the government is pocketing the money.

Anonymous Coward says:

Re: Re: Re: Tax is on Sellers

You’re right that there’s an impact on the seller even if the tax is technically paid by the buyer, but wrong if you’re claiming that the entire burden is on the seller. When a transaction is taxed, there’s a burden on both parties. Supply and demand are curves, and even if the business decides to eat the cost in the short term, that’s not sustainable.

Anonymous Coward says:

Re: Re: Re: Tax is on Sellers

I have news for you, a business passes it costs onto their customers, which means all taxes levies against a business ends up being paid by their customers. It is only the individual that does not have the ability to pass costs on to someone else, but is stuck with paying them.

Anonmylous says:

Re: Re: Re: Tax is on Sellers

Not, it is not wrong. Use taxes scuttle your argument before you even get started.

Taxes in the US are paid by the customer, held by the retailer, and submitted by the retailer. Use tax was created in many states in order to insure they still got their cut from out-of-state purchases by their citizens, though it relied upon the honor system (and still does). Use tax is proof the tax is on the purchaser and not the business. Businesses being able to declare out-of-state sales as non-taxable income to their home State is proof that business do not pay sales tax, they simply remit it after collecting it from their customers.

So please stop saying the buyers are not the ones being taxed.

ACC$ says:

Re: Re: Re:2 Tax is on Sellers

” Use tax is proof the tax is on the purchaser and not the business… “


A ‘sales tax’ is imposed on the sales of goods or services. A legal sales tax can only be imposed in a state where the sale takes place (legal jurisdiction), which is typically where the seller is.

But to impose a ‘tax on sales’ that take place outside the ‘buyer’s’ state, sneaky politicians invented the “use tax”… which {incredibly} taxes the ‘use of goods or services’ not otherwise subject to a sales tax in their state.

If an in-state state business or resident buys goods or services from an out-of-state seller the tax that is imposed is technically a ‘use tax’.

States, motivated by the courts, have gotten together and agreed to exempt goods (and some services) that are exported from the seller’s state from sales taxes, in order that the buyer’s state may impose its own use tax.

The terms sales tax and use tax are technically different, but often erroneously used interchangeably.

Use-Taxes are often defended as legitimate ‘consumption taxes’, but they were enacted primarily to protect in-state vendors/sellers from out-of state competition. Secondarily, greedy state politicians wanted a cut of every sales transaction… no matter what the circumstances.

Anonymous Coward says:

Re: Taxation without representation and fairness.

Wasn’t the idea that taxation without representation was inherently unfair one of the reasons for the American revolution?

Yeah, but they didn’t write that into the law, did they? The court shouldn’t be making up things that don’t exist in law (which is what Cathy’s post was about).

ACC$ says:

Re: Re: Sauce for the gander

…No, Sellers can NOT charge whatever they feel like.

Customers will NOT automatically pay whatever price the seller sets.

Politicians can NOT casually impose sales taxes without significant negative effects on the markets taxed.

And it is fundamentally unjust to force private business people to be unpaid tax-collectors for the government — it is essentially a hidden tax on business.

The internet tax not forces businesses to deal with thousands of tax districts at different tax rates — but these districts also have differing complex rules on WHAT they tax, and even differing tax rates within the same district, depending on type merchandise. Internet businesses must establish/maintain tax-accounts with thousands of government offices … to send in those sales tax dollars (this is a huge and likely fatal burden on small online businesses)

Gary (profile) says:


I always pictured “Going to Amazon” to mean that I am taking my business to them, wherever they are.
Taxing based on the location of the seller raises all sorts of concerns over venue shopping for the best rates, but it streamlines things. As posters have pointed out, the seller isn’t getting any of the benefits of the taxes collected. If Quill or Amazon has a fire, North Dakota isn’t going to send trucks to put it out.
I do know that this isn’t how interstate commerce works. Just feels like it should work the opposite way.

lars626 (profile) says:

Unintended consequences

This could get very interesting. If a business is required to pay taxes in a remote state then it follows that it should have standing to participate in other state activities; like making political donations to candidates it favors. State laws that restrict campaign donations from ‘outside’ entities would not apply since the business is a taxpayer even if they have no physical presence.

Advocate (profile) says:

“The argument, moreover, that the physical presence rule is clear and easy to apply is unsound. Attempts to apply the physical presence rule to online retail sales are proving unworkable. States are already confronting the complexities of defining physical presence in the Cyber Age.”

So let’s implement a rule with all those problems only moreso.

Anonymous Coward says:

Re: Re:

yes that physical presence rule was dumb and unjust, but the Supreme Court bureaucrats really really wanted state politicians to be able to tax people in other states.

Maybe this is just the start of new era — South Dakota should certainly also be able to tax the incomes of residents in Ohio and all other states. Perhaps someday we’ll see a Federal Income Tax on everybody across the nation?

John85851 (profile) says:

What about the payments?

Everyone is talking about the tracking and possible code that it would take to pay 10,000 possible jurisdictions, but what about the payment side of things?
Suppose I run an Internet business and I have 100 customers and they buy 1 product each. I now have to calculate the tax of 100 purchases AND then send a payment check to each city, state, county, and jurisdiction that the customer lives in?
And suppose each customer buys a $10 shirt and the tax rates range from 3% to 7%… so I’m now sending a payment check for 30 cents to 70 cents to the government agencies.

I’m sure little counties in the middle of nowhere would love to get extra income from Internet businesses, but does their staff have the ability to handle thousands of payment checks for 50 cents or 25 cents each? How much time will be spent by the government to process and acknowledge this many payments?

carlb (profile) says:

Re: What about the payments?

I wouldn’t count on the average US corporation to get this right even for places in which they own bricks-and-mortar stores. For instance, ‘Pilot’ bought ‘Flying J’ several years ago. There’s a ‘Flying J’ truck stop near the highway in Napanee, Ontario. I tried to buy a slice of pizza there soon after they were taken over. Ontario taxes restaurant food at 13% VAT (5% federal + 8% provincial) but the provincial portion of the tax doesn’t apply to prepared meals under $4. They screwed this up and charged me the full 13% on a single slice (which is under $4), I questioned it, they took the pizza away from me, tossed it into the dustbin with the rest of the garbage and gave me my money back. I didn’t try that again.

Now try this for an Amazon-sized operation with no local presence? I’m certain the result will be utter chaos.

Paul Alan Levy (profile) says:

NOT a federal case, actually

Forgive me, but the headline here is somewhat misleading. It was Wayfair that claimed that collection of sales taxes by South Dakota was a violation of the federal constitution (namely, the Commerce Clause), and the Supreme Court rejected that constitutional claim. So the shorthand would be that the Supreme Court REFUSED to make a federal case out of Wayfair’s objection.

Anonymous Coward says:

National Sales Tax

Up next, National Sales tax law that include clause preventing states from collecting sales taxes from companies outside of their border. Because interstate commerce.

Its the only way to fix this problem, conveniently.

The only winner here is the Federal Government.
States will be back to square one and citizens will be paying more for everything in exchange for little, if any, benefit.

Anonymous Coward says:

Sales tax as an interstate export tax.

In other news, the midwestern states create the “Ogallala Consortium”. All will charge sales tax, collectable on grains to all states except to member states. Chicago grain exchange promptly crashes. Food prices rise in the coastal states causing famine.

Next week, WV and PA create the “coal producers reserve tax”, thousands in northern states expected to freeze to death this winter.

Clearly SCOTUS thought this one through…

Jeffery Egbert says:

Out of state companies are required to collect payroll taxes

There is already a requirement that a company that might not have a presence in a state to collect and remit payroll taxes for the state the employee lives in. We are based in Washington but have to collect and remit Oregon payroll taxes for employees who work here but live in Oregon. This is really just an expansion on that same idea.

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