Almost every day, South Dakota retailers report that people come to their showrooms to look at products. These people ask questions and then leave. They then go home and buy that same product online to avoid paying any sales tax.
South Dakota does not have a state income tax, so the state relies heavily on sales tax revenue to fund the state’s programs. In 2016, the South Dakota Legislature passed a law that online retailers would have to start charging sales tax if they had over $100,000 in South Dakota sales or if they had over 200 separate sales from South Dakota residents.
This law was enacted in spite of the fact that the United States Supreme Court in the 1992 Quill case ruled that sales tax did not have to be collected if a business did not have a physical presence in the state. Some online retailers refused to pay the sales tax in light of the 1992 ruling. The state of South Dakota sued these retailers for non-payment.
The state of South Dakota has lost its case in all of the lower courts. However, the United States Supreme Court has decided to hear the South Dakota case and will take up oral arguments on April 17.
If the state of South Dakota should win in the United States Supreme Court, they estimate that it would bring as much as $50 million in revenue to the state each year. Other states anticipate receiving large revenue increases as well.
The key to the decision will likely rest with Justice Kennedy. In 2015, Justice Kennedy made a ruling on a different case that referenced the 1992 Quill case. Justice Kennedy commented that the 1992 physical presence ruling might need to be reviewed as out of date now that the internet age is upon us.
After the justices hear the oral arguments in April, there will be a period when they consider their ruling on the case. The decision of the court is expected to be revealed sometime in late June.