Can South Dakota Force California Company Newegg To Pay Online Sales Tax?
PIERRE, S.D. (AP) - South Dakota wants to collect state sales tax on purchases from Overstock.com and other Internet retailers. The state is pressing for the revenues with a lawsuit against several remote retailers that ultimately seeks to overturn a U.S. Supreme Court decision.
The state lawsuit is based on a law passed during the 2016 legislative session. Two trade associations on Friday challenged the constitutionality of the law, which requires out-of-state sellers who exceed revenue and transaction thresholds to comply with state sales tax laws.
A 1992 U.S. Supreme Court decision bans states from forcing out-of-state retailers to collect taxes if they don't have a physical presence in the state. In a filing Thursday, the state acknowledged it ultimately wants the high court to overturn its previous ruling. No state has filed a similar lawsuit challenging the decision, according to the Retail Industry Leaders Association, a trade group that includes such members as Best Buy, Target and Wal-Mart.
State Sen. Deb Peters, who sponsored the legislation, said in a statement that the Supreme Court decision gives out-of-state retailers an artificial advantage over local businesses while eroding state coffers.
South Dakota is missing out on $48 million to $58 million annually in state and municipal tax revenues, according to a court complaint. The document says the outcome the state wants will allow it to require sales tax be collected and remitted from sellers without a physical presence in South Dakota.
It would be surprising if the circuit court ruled in favor of the state, said Steven Schwinn, a law professor at the John Marshall Law School in Chicago.
"What the state is probably thinking is that they want to tee up a case for Supreme Court review," he said. "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."
The lawsuit was filed in South Dakota 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.
Tony Venhuizen, chief of staff to South Dakota Gov. Dennis Daugaard, declined to comment. The South Dakota Retailers Association cheered the state litigation as a move to fight inequity for brick-and-mortar stores.
"Local businesses are tired of competing with one arm tied behind their back," Executive Director Shawn Lyons said in a statement.
But eCommerce trade group NetChoice and the American Catalog Mailers Association argue in a lawsuit filed Friday that the court should find the state law unconstitutional and unenforceable.
The new law could set the course for huge tax and administrative burdens on companies across the country, Steve DelBianco, executive director of NetChoice, said in a statement.
"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 decisions they will follow," said Hamilton Davison, president and executive director of the American Catalog Mailers Association.
Copyright 2016 The Associated Press.
