Trade associations filed lawsuit challenging the constitutionality of a 2016 state tax law.
South Dakota passed a new law this year that requires out-of-state sellers who exceed certain business thresholds to comply with state sales tax laws and pay up. The state filed suit against four major retailers to start paying their share. Now several trade associations are fighting back, by filing a lawsuit in state court to challenge the law’s constitutionality, according to KDLT News. A 1992 Supreme Court ruling in a case known as Quill Corp. v. North Dakota currently bans states from forcing out-of-state retailers to collect taxes if they do not have a physical presence in the state.
The lawsuit was filed against Wayfair, Inc. of Boston; Systemax, Inc., of Port Washington, New York; Overstock.com, Inc., of Salt Lake City; and Newegg, Inc., of City of Industry, California. According to MyInforms, The lawsuit says in the first paragraph of the summary, “The State acknowledges that a declaration in its favor will require abrogation of the United States Supreme Court’s decision in Quill Corp. v. North Dakota.”
State Senator Deb Peters, sponsor of the legislation, released a statement that asserted that the limits set by the Supreme Court ruling give out-of-state retailers an artificial advantage over local businesses, and deflect revenue from the state. The court complaint argues that South Dakota is being deprived of between $48 and $58 million annually in state and municipal tax revenues as a result.
South Dakota is pressing the Supreme Court to overturn that ruling. If that happens, it could have significant implications for ecommerce across the nation. There have been no state challenges to the 1992 ruling to date, according to the Retail Industry Leaders Association, a trade group that includes Best Buy, Target, Walmart, and other retailers.
Among those companies directly affected by the South Dakota legislation are Overstock.com and California-based Newegg, among others.
Steven Schwinn, law professor at the John Marshall Law School in Chicago told CBS News that a win for the state at the circuit court level would be surprising. He said, “What the state is probably thinking is that they want to tee up a case for Supreme Court review. It doesn’t really matter whether they win or lose in the lower courts because those courts don’t matter for what they’re trying to do.”
While local retailers are lauding the state litigation, eCommerce trade groups are predictably upset by the move. Hamilton Davison, president and executive director of the American Catalog Mailers Association told CBS News, “This statute is blatantly unconstitutional and flies in the face of law that has been settled for decades. States simply don’t have the authority to pick and choose the Supreme Court decision they will follow.”
