Updated Apr 18, 2018

Supreme Court grapples with online sales tax

George Isaacson (left), lead counsel for the defendants in the South Dakota vs. Wayfair case, outside the Supreme Court. Photo: Alex Wong/Getty Images.

Supreme Court justices seem split on whether to allow state governments to collect sales tax from online retailers, a move that would drastically change long-standing interstate e-commerce rules.

Why it matters: It's one more example of the Supreme Court grappling with the collision of existing legal precedent and the realities of the tech-driven economy.

Driving the news: In the case before the high court Tuesday, South Dakota sought to overturn established rules that only allow states to require retailers to collect sales taxes if they have a physical presence there. Online retailers Wayfair and Overstock say changing the rules would force online retailers to deal with a confusing patchwork of state tax laws.

Most large online retailers already pay sales tax, but many of the smaller vendors using their platforms often don't. Small- and medium-sized online retailers may struggle with the logistics of collecting and remitting sales tax in the 45 states that have one.

A state-by-state sales tax system could force small sellers to rely on large online retail platforms like Amazon, Etsy and eBay who have the infrastructure to deal with the complexity, said Steve DelBianco, President and CEO of NetChoice, an e-commerce trade association.

  • Those online marketplaces may also feel the biggest effect: The Government Accountability Office estimates that between $3.9 billion and $6.2 billion in taxes could have been collected on goods sold by smaller vendors in 2017, the WSJ pointed out.

In Congress: Online retailers say it's up to Congress to address the issue — even though Congress has failed to act. Rep. Bob Goodlatte has pushed legislation to streamline online sales tax, but those negotiations stalled.

What's next: A decision is expected by the end of June.

Go deeper: USA Today has a good overview of Tuesday's arguments.

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