What retailers need to know about South Dakota v. Wayfair

April 17, 2018

This article originally appeared on www.digitalcommerce360.com

April 17, 2018 could be the day that transforms the way online retailers operate when the U.S. Supreme Court will hear the case South Dakota v. Wayfair Inc., et al. The court is expected to announce its decision in June.

The case could overturn the 26-year-old precedent, established in Quill Corp. v. North Dakota, when the court ruled that Quill, a catalog retailer, did not have to collect sales tax in North Dakota because it had no physical presence in the state.

South Dakota aims to overturn that precedent to force retailers to collect sales tax on online purchases regardless of whether they have a physical presence—such as a store or distribution center—in the state.

The state argues that the current precedent harms state treasuries and store-based retailers. The web-only merchants Wayfair, Overstock and Newegg counter that collecting sales tax would be too complicated for small and medium-sized retailers that don’t have a system to calculate how to comply with the nation’s 12,000 tax jurisdictions.

Several retail businesses, such as Flipper LLC, which lists goods for sale on Amazon.com Inc.’s marketplace, and online marketplaces eBay Inc. and Etsy Inc., have filed briefs urging the court to uphold Quill. EBay filed its brief along with 51 of its marketplace merchants to ensure the court considers not only how large web-based retailers sell online, but also how small businesses use the internet, Brian Bieron, senior director of government relations at eBay told Internet Retailer.

“We hope that [the court] understands how important e-commerce is to the growth opportunities of small businesses and to entrepreneurs throughout the country,” Bieron says.

Wayfair, Overstock and Newegg are large online retailers, each generating annual revenue of more than $1.8 billion, according to Internet Retailer data. That sets them apart from many small eBay marketplace sellers, Bieron says.

“The internet is not a tool reserved for the biggest companies,” Bieron says.

Because eBay does not sell any of its own goods, it does not collect sales tax for the sale of products on its platform. Instead, it is optional for a marketplace merchant to tell eBay in which states it has a physical presence, and eBay will calculate the sales tax when a consumer from one of those states makes a purchase.