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SCOTUS: Sales Tax for Mail Orders v. Brick-and-Mortar Stores

by Andrew Jones

April 17th – er, 18th – was the deadline to submit federal income tax returns. As always, the tediousness of the process was infuriating for all. But if you thought complying with the federal tax code was tedious, imagine having to comply with an additional 45 tax regimes. In the case of South Dakota v. Wayfair, Inc., the Supreme Court will soon decide whether this will be the future plight for mail-order businesses in the US.

South Dakota is one of the 45 states that impose sales taxes on certain products, and these tax regimes make the seller responsible for charging and collecting the sales tax. So your mom-and-pop store in South Dakota charges and collects sales tax on the groceries it sells, and then pays them to South Dakota’s tax authority, and vice versa for a North Dakota mom-and-pop. But if the latter expanded its business, say, offering mail-order groceries to South Dakota customers, South Dakota says mom-and-pop must comply with its tax regime.

Complying with an additional tax regime takes time, effort, and resources. For large, established businesses like Amazon, no problem. But for small businesses, complying with an additional 44 tax regimes is, well, you can see why mom-and-pop will find it cost-prohibitive to expand their operations nationwide (apart from the 5 states without sales tax regimes, of course).

Since the Court handed down its 1992 decision in Quill Corp. v. North Dakota, the law has been that a state may only impose its sales tax regime on businesses physically located within the state. This brick-and-mortar standard came before e-commerce and the internet, and South Dakota is arguing that, given the prevalence of mail-ordering and online sales (rather than walking into, say, your local mom-and-pop, or Target, to shop) the brick-and-mortar standard is outdated, and thus Quill should be overturned.

Should the Court rule in favor of South Dakota and overturn Quill, compliance costs will increase for all mail-order and online businesses, and these costs will be passed on to consumers. This is important because, while not everyone sells goods, everyone consumes goods. And this is especially so when it comes to the recent mail-order “subscription box boom” – from “BarkBox,” “Birchbox,” and “Box of Style,” to the “Dollar Shave Club.” And as the consumption of mail-ordered goods increases in popularity, nothing would make established, large businesses like Amazon happier than to see additional costs imposed on its smaller potential competitors.

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