South Dakota does love litigation.
This Session, at the behest of the Governor, the South Dakota Retailers Association, and the state Chamber of Commerce, our Legislature passed Senate Bill 106, the “Main Street Fairness Act,” to require online retailers to pay sales tax on items sold to South Dakotans. Set to take effect tomorrow, SB 106 wouldn’t have Andy Gerlach shaking your sister in Minnesota down for 4% (4.5% as of June 1!) on those couple dozen potholders she knits and sells on Etsy to her Sioux Falls friends. SB 106 redefines the tricky concept of “nexus“, or taxable presence, to net remote sellers who sell over $100,000 worth of product to South Dakota buyers or make over 200 sales in South Dakota.
As I reported from the House State Affairs hearing on SB 106, prime sponsor Senator Deb Peters (R-9/Hartford) and other supporters were spoiling for a lawsuit. They wrote SB 106 like a legal brief, with eleven findings arguing to overturn Quill Corp. v. North Dakota (1992), in which the Supreme Court said states can’t impose sales and use tax on retailers who don’t have physical storefronts in their states.
The state fulfilled its own wish Thursday, filing suit in our Sixth Circuit against Wayfair, Systemax, Overstock, and Newegg. South Dakota contends that it could recoup $48 million to $58 million a year in online sales tax from remote sellers.
The Retail Litigation Center, which is made up of several big-box stores who also sell stuff online, says yay, South Dakota:
Last year, in his concurring opinion in DMA v. Brohl, Justice Kennedy asked the legal system to develop a case so that the U.S. Supreme Court could reexamine the Court’s holding in Quill. The State of South Dakota has done just that.
We applaud South Dakota for developing litigation that should ultimately enable the U.S. Supreme Court to reconsider its decision in Quill, which does not reflect the reality of 21st century technology. Today’s retailers can be virtually ‘present’ everywhere. A legal rule that artificially distinguishes between retailers with physical stores inside a state’s geographic borders and without such stores is an anachronism today. We urge South Dakota’s judiciary to act quickly to facilitate resolution of this important issue [Deborah White, president, Retail Litigation Center, press release, 2016.04.28].
To double our court fun (Attorney General Jackley, when will you have time to investigate Select Management Resources?), the American Catalog Mailers Association and e-retailers’ association NetChoice (which includes Overstock, Lyft, eBay, PayPal, Yahoo, Facebook, and Google) are suing us back:
“South Dakota is showing wanton disregard for established Supreme Court precedent,” said Hamilton Davison, president and executive director of the ACMA. “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.”
…“This is equivalent to malpractice,” said Davison. “It represents exactly the type of bad governance that makes Americans cynical of big government. While US Supreme Court precedent gives Congress the right to make new rules for interstate commerce in this area, State legislatures do not have this right” [NetChoice, press release, 2016.04.29].
In addition to its concern for stare decisis, NetChoice sobs that coding online shopping carts to calculate 50 different state sales tax rates and writing checks to fifty state capitals every month could cost a mid-size retailer “$80,000 – $290,000 in setup and integration costs and $57,500 to $260,000 in ongoing maintenance, updates, audits and service fees charged by ‘free’ software providers.”
Both of these cases are in South Dakota’s Sixth Circuit. By the time they work their way to the U.S. Supreme Court, the Senate should have finally worked up the ambition to confirm a ninth Justice to bring the Court back to full strength… unless President Hillary Clinton inspires Senator Mike Rounds to come up with some new bad argument for not doing his job for four more years.