The State of South Dakota has filed a lawsuit against four big online retailers seeking to force them to comply with a new State law that requires them to collect and remit sales tax even if they have no physical presence in South Dakota.
The State on Thursday sued Newegg Inc., Overstock.com Inc., Systemax Inc., and Wayfair LLC. in a circuit court in Hughes County, where the State capital of Pierre is located. The suit seeks the court to affirm that South Dakota may require the four web-only retailers to collect and remit sales tax.
The lawsuit is explicitly aimed at forcing the U.S. Supreme Court to reverse its 1992 ruling in a case known as Quill Corp. v. North Dakota in which the high court rules that only a company with a physical presence in a state—such as a store, office, warehouse, or a sales representative, could be required to collect sales tax from state residents. 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.”
The lawsuit is based on legislation that South Dakota Gov. Dennis Daugaard signed into law March 22. It requires retailers to register by April 25 with the State Department of Revenue, committing to comply with the law as of May 1. Or retailers can notify the State that they do not meet the requirements of the law, which only apply to out-of-state merchants that sell at least $100,000 or complete at least 200 transactions annually with South Dakota residents. The law authorizes the State to sue retailers that fail to register without having to first levy assessments on those retailers.
Meanwhile, the American Catalog Mailers Association and NetChoice, trade associations for catalog and online retailers, on Friday sued South Dakota, challenging the constitutionality of the State’s law. That suit also was filed with the circuit court in Hughes County, South Dakota.
South Dakota doesn’t like that bricks-and-mortar retailers collect the sales tax but online retailers don’t, says Stephen P. Kranz, partner with McDermott Will & Emery LLP, the law firm that successfully represented Quill before the U.S. Supreme Court in the 1992 case. Quill Corp. was a catalog retailer of office supplies and equipment that subsequently was acquired by Staples Inc.
“They (South Dakota) are trying to force all retailers to collect sales tax or haul those who don’t up to the U.S. Supreme Court,” Kranz says. The aim is to try to overturn the 1992 Supreme Court decision that protected companies without a physical presence in a state from collecting sales tax, Kranz says. “The questions being raised are ultimately constitutional questions that would need to be reviewed by the U.S. Supreme Court,” Kranz says of both lawsuits.
Kranz says more than 12 State legislatures have enacted laws challenging the 1992 Supreme Court decision and he expects as many as eight more will do so this year.
South Dakota has now joined Alabama and Colorado in becoming the front-line aggressors in this battle, Kranz says.
I was part of the Quill case, as the MIS Director of Global Computer/Equipment Company that today is Systemax Inc. And under current law, the state cases should fail. The one part of these cases were not covered in the Quill case. Today, we have online sites that receive a commission for sending a potential customer to another site and receive a commission if a sale occurs. This is one of the reasons Amazon dropped some agreements or decided to collect sales tax on orders. Many states also gave Amazon tax benefits to build warehouses in their states, which helped Amazon give same-day deliver service.
NYC Wins When Everyone Can Vote! Michael H. Drucker
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