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State Supreme Court to Hear Online Sales Tax Arguments August 29

Speaking of taxes, next week Tuesday, August 29, the South Dakota Supreme Court hears arguments in South Dakota v. Wayfair, Overstock, and Newegg. Our Legislature provoked this case in 2016 with Senate Bill 106, the “Main Street Fairness Act” designed to challenge the 1992 Quill decision and force all online vendors to collect and remit South Dakota sales tax.

The state is hoping the justices will nuke their appeal as quickly as possible so they can get on the U.S. Supreme Court docket in the next session.

In its appellant’s brief, the state repeats the claim Governor Dennis Daugaard made in his budget address last December that South Dakota loses “roughly $50 million” in lost state and local sales tax revenue to online sales. The appellee companies dispute that assertion:

The exaggerated claims put forward in each of the State’s sources, from Governor Daugaard’s assertion in his fiscal year 2018 budget address to a recent press release by the National Conference of State Legislatures, all derive from a single, unreliable source: a study done in 2009 by professors at the University of Tennessee. See Applnt. Br. at 25; Donald Bruce, William Fox, & LeAnn Luna, State and Local Government Sales Tax Revenue Losses from Electronic Commerce, University of Tennessee (Apr. 13, 2009) (“Tennessee Study”). The Tennessee Study’s inflated estimates, however, were discredited by competing analyses soon after they were issued. For example, a more recent study showed that the Tennessee Study overstated the uncollected use tax on Internet sales by approximately three-hundred percent (300%). See Jeffrey A. Eisenach and Robert E. Litan, “Uncollected Sales Tax on Electronic Commerce: A Reality Check,” (Feb. 2010)… (estimating uncollected tax in South Dakota of $10 million, compared to an estimate of $29.8 million in the Tennessee Study); see also Peter A. Johnson, Setting the Record Straight: The Modest Effect of Ecommerce on State and Local Sales Tax Collections, Direct Marketing Association (Jan. 31, 2008) (estimating uncollected taxes 30% lower than an earlier version of the Tennessee Study) [links added; Appellees’ Brief, South Dakota v. Wayfair, Overstock, and Newegg, June 2017, pp. 18–19].

The online retailers also say South Dakota’s guess is based on outdated figures and ignores that fact that Amazon, which agreed last January to collect South Dakota sales tax, makes up 60% of online sales. They thus contend that South Dakota’s loss is more like $21 million, “not the excessive $50 million annually claimed by the State” and “less than one-half of one percent of the South Dakota budget for 2016 of $4.4 billion.”

The online retailers also vigorously rebut the state’s argument that collecting sales tax from out-of-state e-vendors will level the playing field for in-state brick-and-mortar retailers. They contend that online shoppers ignore sales tax and even greater shipping costs and choose online vendors for convenience. The retailers say that having to collect oh-so-complicated state and local sales tax will only increase their own competitive disadvantage. They even complain that they suffer from “webrooming”—customers checking out products online, then going downtown to by from a local retailer—far more than main street vendors suffer from “showrooming”—customers checking out products in person at neighborhood shops, then buying online.

The state responds that the defendants are blowing corporate smoke:

Tellingly, many of the “studies” they cite come from interested parties: They cite an electronic tax preparer that profits by “simplifying” the allegedly “complicated” system for taxpayers for the proposition that sales tax compliance is too complicated. See DB 23. They cite an article published by sales tax collection opponent NetChoice for the proposition that the tax losses in the materials relied on by Justice Kennedy himself are overstated. See DB 18. To support the proposition that the Streamline Sales Tax project has insufficiently simplified state tax compliance, they cite a paper by their own counsel in this case, DB 25, and a study published by a group that “represents American businesses in the fight to keep interstate commerce and competition free from unfair tax burdens imposed by states where our businesses have no operations or representation.” See DB 24; http://truesimplification.org/about/ (describing “TruST”). And in a marked contrast to the distinguished academics who have researched and published peer-reviewed articles respecting the economic dislocations and harms to State revenue caused by Quill, see SB 24-35, Defendants spend pages discussing a phenomenon called “webrooming” based on articles published in the advertising trade press. See DB 27- 28 (citing Adweek and Marketing Land) [Appellant’s Response Brief, SD v. W/O/N, 2017.06.22, p. 17].

Again, those economic and legal arguments take oral form before our justices Tuesday, August 29, at 11:00 CDT.

One Comment

  1. John Kennedy Claussen, Sr. 2017-08-21 15:33

    Is anyone bothered by the fact, that we pass state laws sometimes that we know are illegal or unconstitutional in an attempt to merely create a constitutional challenge? Is not such an act by political leaders a violation of their oath of office, where they swore to uphold the laws and the constitutions of our state and federal government?

    This strategy was also used in the last decade in an attempt to rewrite and or overrule Roe v. Wade too. But how is this strategy not a violation of an officials oath, and thus, a theoretical impeachable offense?

    There are legitimate remedies to laws and constitutional rulings that political leaders do not like. They need not use this manipulative and illegal means in my estimation. Have they ever heard of a constitutional amendment, or waiting for third party events to evolve into a case which could be of the manipulative politicians liking?

    I realize that an amendment or waiting for the perfect fact pattern for a case could be time consuming to these manipulative politicians, but aren’t they the only just ways? Why should people and or businesses be subjected to laws that are obviously illegal or unconstitutional from day one? Do a free people live in a free world, if their leaders force realities upon their citizenry, which have yet to have been legalized and or upheld?

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