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SD Wins Bigger Government, Bigger Sales Taxes in Wayfair, Can Now Afford Food Tax Relief

Marty Jackley lost the primary to the less-qualified Kristi Noem, but he can celebrate winning his big Supreme Court case. Despite Jackley’s shaky performance in April, the highest court in the land today decided in South Dakota v. Wayfair to accede to the wishes of the conservative Republican South Dakota Legislature and allow us to enforce our state laws beyond our state borders and collect more tax dollars from people who’ve never set foot in our state.

I’m not the only one who finds this ruling ideologically confusing. The 5–4 ruling found usually conservative but today judicial activist Justices Thomas, Alito, and Gorsuch joining centrist Kennedy and liberal Bader Ginsburg overturning the Quill 1992 decision and greenlighting extraterritorial government authority and higher taxes, while liberals Breyer, Sotomayor, and Kagan joined conservative Chief Justice Roberts in defending stare decisis, limited state government, and lower taxes.

Jackley cheers today’s decision as “a win for South Dakota and for Main Street businesses across America that will now have a level playing field and tax fairness.”

Bread for the World South Dakota celebrates, too, because this victory means that if all those out-of-staters we now get to draft as tax collectors do their jobs well, the extra revenue they collect for us may lead to a lower sales tax rate.

Background: A little-known section of a 2016 law says that if the Supreme Court approves, as just happened, the collection of tax on online sales, and then if that tax revenue goes up at least $20 million, then one-tenth of a percent must come off the state’s general sales tax rate. It’s the law [Bread for the World SD, press release, 2018.06.21].

Of course, Bread for the World thinks that we should use this opportunity, brought to us by judicial activism, to focus relief on the poor by cutting the food tax:

A sales tax cut is coming. In fact the law requires one. Which do you prefer: Tenths of a percent off the general sales tax rate? or whole percents off groceries?

…The next legislature could switch the cut to make it a whole percent off groceries instead.

…Tell candidates for SD state legislature: I’d prefer 1% off food to 1/10% off the general rate. When there’s going to be a sales tax cut, we should start phasing down the food tax [Bread for the World SD, 2018.06.21].

Recall that Senator Reynold Nesiba proposed exactly this idea during Session:

Senator Reynold Nesiba (D-15/Sioux Falls) puts his economics degree to use in writing Senate Bill 159. which modifies one little sales tax statute. Recall that in 2016, the big sales tax bill we passed to fund the Blue Ribbon teacher pay increases contained Section 19—now SDCL 10-64-9—which obligates the state to use any proceeds from new sales tax revenue collected by remote sellers to reduce other sales taxes. If the Supreme Court votes our way on South Dakota v. Wayfaircurrent law would lower the sales tax rate on certain items by 0.1% for each $20 million in new revenue from remote sellers. SB 159 amends that reduction to 1% for each $10 million in new revenue and applies the reduction strictly to sales tax on food [CA Heidelberger, “SB 159: Nesiba Redirects Possible Online Sales Tax to Cut Food Tax,” Dakota Free Press, 2018.01.28].

The Republicans on Senate Taxation killed Senator Nesiba’s bill, because the poor are to be blamed and bludgeoned, not favored, by our laws. But now the Wayfair online sales tax windfall is real. It seems more than fair that the first fruits of that windfall should go to the least among us, those hit hardest by the tax on food. Let’s take Jackley’s win and run with it, straight to a revisitation of Nesiba’s excellent idea of food tax relief.

31 Comments

  1. Robert McTaggart 2018-06-21

    I think there is a threshold of either 200 sales or $100,000 in sales for the collection to kick in…that is just for South Dakota.

    So if one person buys 10 sweaters from Vermont, there is no sales tax collected. Unless those sweaters cost $10K each….

  2. lrads1 2018-06-21

    Collection doesn’t depend on the BUYER’s volume. SD’s law applies to online SELLERS with more than $100,000 in sales to South Dakotans or 200 or more transactions. If the SELLER conducts that minimum amount of business with South Dakota residents, then the state can now require them to collect sales tax just like any other brick and mortar in-state retailer.

  3. John Kennedy Claussen, Sr. 2018-06-21

    Welcome to the beautiful world of 50 mini federal governments…. Brought to you by….the South Dakota Republican Party….whose mission is to bring you less government…….

  4. Robert McTaggart 2018-06-21

    Yes, if someone sold 10 sweaters for $10K each to someone in South Dakota, the sales tax would apply.
    But they better be pretty good sweaters ;^).

    If other states implement the same rules as South Dakota, they are less likely to have those rules overturned (i.e. the Supreme Court approved of SD’s rules, and particularly liked the exception for low volume sellers). So following precedent may reduce some of that problem of 50 different sets of rules.

  5. mike from iowa 2018-06-21

    OT- European Union just announced targeted tariffs against red states- Orange juice from Florida. Harleys from Wisconsin and peanut butter, I assume, from Georgia.

  6. o 2018-06-21

    I believe this revenue is already spoken for; didn’t one of the last amendments to the 1/2 penny sales tax increase for education require that revenue stream would be replaced (should internet taxation pass) by internet sales taxes?

  7. mike from iowa 2018-06-21

    Ever notice how no one ever runs voter suppression schemes against the koch bros? Probably never crossed Kris Kobach’s twisted mind to accuse Chuck and Dave of voter fraud. Smacks of discrimination, that does.

  8. Cory Allen Heidelberger Post author | 2018-06-21

    Say, under this ruling, if lots of states start demanding sales tax collections, could an online vendor simplify her life by simply charging all customers her home state’s sales tax, just as she would if customers came to her store and bought in person?

    Also, looking at the criteria lrads1 cites above (see SDCL 10-64-2) intended to protect small businesses, I wonder: do online vendors only collect and remit sales tax on sales after $100K or 200 transactions? Or (horrors!), if a sweater maker in Minnesota makes 195 sales to South Dakota through December 30, and then on December 31 she gets a sales spike and five South Dakotans order sweaters, does the vendor have to go back and get sales tax from all of her earlier customers?

  9. grudznick 2018-06-21

    Mr. H, I expect Mr. Nelson is going to spearhead a task force against his Governor’s promise to not have more task forces, and he will sort this out with his fists if need be. As Lt. Governor, Rogue, he will sport name tags that tout him as the Lt. Governor in small pithy print and then bold and emblazen the “Rogue” part of his title, bestowed not by the public or voters but by the delegates at the GOP convention, those voting being insaner than most.

  10. Debbo 2018-06-21

    It seems to me that everyone eats, one way or another. Therefore, a 1% reduction in food tax should be good for all, not just the poor. What is the SDGOP’s problem?
    That was probably a silly question on my part. Sorry.

  11. A Nicer Person 2018-06-22

    I’m glad to join far superior minds in thought. CH’s question about online retailers pulling back was my idea in April, when this issue was argued.

    I doubt Amazon will quit delivering to my door, but I wouldn’t be surprised if Arthur Bryant’s quit selling me their sweet meat goodness.(I don’t push over the limit either in quantity or $ amount, but I can’t be the only one who enjoys KC bbq? And is it worth their time/effort?)

    I’m doubtful Nesiba’s bill gains traction. It’s time for an income tax.

  12. mike from iowa 2018-06-22

    This decision started out as saying states MAY start to collect and later in the day MAY magically turned into MUST. Which is it?

  13. Wayne 2018-06-22

    Cory,

    To your question about tax collection on the first 200 un-taxed transactions: 10-64-6 prohibits retroactive sales tax collection. That sweater maker, therefore, would not have to collect taxes on the first 200 transactions. However, if I’m reading 10-64-2 correctly, that retailer still wouldn’t need to collect taxes after the fifth transaction in January – the statute uses OR, which means either 200 transactions in the prior year, or 200 transactions in the current year.

    This allows the state to say last year you had 201 transactions – collect and remit sales taxes this year (even if you only do 50 transactions this year). It also allows the state to immediately require the 201st sale in a calendar year to collect sales tax.

    My question is, can this be enforced on companies located outside the US? If someone buys from the Chinese version of Amazon, how does SD enforce it? I don’t see how sites like AliBaba can be compelled to comply.

  14. mike from iowa 2018-06-22

    During the Supreme Court’s oral arguments, South Dakota’s attorney general lamented that “our states are losing massive sales tax revenues that we need for education, health care and infrastructure. (I’ll bet)

    I wonder whose crony gets oversight of tax collections and distribution of collections?

    The Scotus didn’t answer the retroactive tax collection question.

  15. mike from iowa 2018-06-22

    The new US Supreme Court ruling affects the following online sellers:
    US Based Businesses

    If your business is set up in the US and uses a US address, you will be expected to comply with new sales tax regulations.
    International Sellers with US Warehouses

    If your business is set up outside of the US, but you use FBA or another warehouse service to store product and fulfill your orders, new sales tax regulations apply to you. It is unclear right now if dropshipping from a US supplier will exempt you from any new sales tax regulations. We will have to wait to see how it unfolds.

  16. Richard Schriever 2018-06-22

    Re: the international seller question: Once upon a time in a past life I used to consult to a number of overseas manufacturers thya6t distributed product in the US, Typically, even though all manufacturing, shipping etc. was done overseas, they would establish at least one small office somewhere in the US (LA, Chicago, NYC) staffed by 2-3 employees – and INCORPORATED in the US. These folks were here to represent in real time (days/nights don’t match up so well in the rest of the world – and top level Execs there like to keep civilized hours). Now these folks weren’t “fast actors” as they really didn’t have authority to decide – only to represent. None-the-less, those companies do typically have a US presence.

  17. mike from iowa 2018-06-22

    The one sight with any reference to AliBaba and the recent Scotus ruling conveniently hid behind a paywall just as the story got interesting. Anyone here have access to Atlanta Journal Constitution?

  18. Richard Schriever 2018-06-22

    For example, iiYama (Japan) – the largest manufacturer of computer and digital display screens in the world, has a presence in the US as “iiYama, USA, Inc.” that is essentially a 4 person office in LA. All US sales and distribution and other contractual relationships in the US are run through that office. Monitors/displays are all manufactured in Japan – and shipped direct. At least, that’s the way it was set up back in the early ’00s.

  19. Debbo 2018-06-22

    Axios had this note:

    Etsy CEO Josh Silverman said in a statement that the decision could hurt the small businesses that use his company’s platform.

    eBay called for Congress to create a small business exemption “to help small businesses take advantage of the internet to grow and create local jobs.”

  20. jerry 2018-06-22

    So then, how is this gonna help main street business in South Dakota? Will the stores now have all the stuff that I need when I need it or will they order it like I have to do… on line? When they do that, they will have to pay a tax and then tax me again when it arrives at the store. More tax and spend shenanigans from the most corrupted party to exist since Thaddeus Experieneo had his store in Rome, circa a long time ago, selling used olive oil.

  21. Porter Lansing 2018-06-22

    Amazon has been collecting Colorado sales tax for some time (since they built their first warehouse/distribution center here) and small business is thriving. It’s thriving because small business does that in Democratic controlled states. Same with California. Small business stagnates in South Dakota because Republicans have installed a non-tax structure that chokes growth. Investing in the state is crucial to small business. A “no tax increase for any reason” leads no where but every voter has an extra $100 a year to spend in Minnesota. Whoopee!!

  22. jerry 2018-06-22

    Another reason to put Billie Sutton in charge. If NOem, as just another insider, gets the nod, you can bet the farm there will never be an accounting of the income. Under trumpian rule, this would be just another scam like legal gaming. Remember how that was gonna pay for education to keep our teachers the best paid and most qualified in the land? I do.

  23. mike from iowa 2018-06-23

    From ALEC legal councel on Wayfair ruling- (ALEC opposed it)

    “Small businesses and innovators will be subject to over 12,000 taxing jurisdictions in the United States. They will face audits and compliance costs very few can comprehend. And many businesses will likely limit their reach or go out of business rather than face the risk of audit from states like California, Illinois, or New York.”

  24. Porter Lansing 2018-06-23

    ATTN Koch Bros … SCOTUS made no stipulation denying a surcharge by sellers to cover the new necessary paperwork.
    PS … I find your FAKE NEWS attacks on mass transit (particularly light rail) to be self-serving and anti-American. Mass transit saves gas. You sell gas. Are your profits more important than mitigating air pollution? Apparently.

  25. Debbo 2018-06-23

    Porter, nothing, No Thing is more important to the Kochs and their minions than money. No thing, including human beings. They buy MOC and state governments that behave accordingly.

  26. Cory Allen Heidelberger Post author | 2018-06-23

    Under Wayne’s interpretation, the way SDCL 10-64-2 is written, the Minnesota vendor who makes SD sales #200 on December 31 at least has to collect sales tax on that 200th sale and then has to collect sales tax on every SD sale made in the following year, even if that number of next-year sales doesn’t top 200 or break $100K in value.

    But I wonder about the intent of SDCL 10-64-6, the retroactivity clause that Wayne cites. Did that intend to free vendors of the obligation to go back and collect taxes on SD sales #1–199 when they hit sale #200, or was it intended simply to clarify that the vendors would not be on the hook for taxes required by the statute from the time it was enacted on May 1, 2016, to the time that the courts would eventually rule it constitutional?

  27. Cory Allen Heidelberger Post author | 2018-06-23

    Jerry, I agree that the boost to Main Street business may be less than GOP tax-hikers are selling it. Difference in price doesn’t matter if no one in town is selling what we want. And if remote sellers are now also collecting sales tax, the “civic duty” justification for buying locally disappears.

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