In 1992, in Quill Corp v. North Dakota, the US Supreme Court prohibited states from requiring vendors to collect sales tax when that vendor had no physical presence in their state. In the absence of federal legislation on the subject, this prevented the over 6,000 sales and use tax jurisdictions then in existence, from propounding a bewildering hodgepodge of regulations that could fatally stunt the growth of an online merchant system in its infancy.
Online sales have increased tremendously since then, ballooning up as much as 15 percent per year, and replacing traditional storefronts. State inability to collect taxes on these online stores has resulted in increasing losses of potential sales tax revenues. This burden falls especially heavy on states, such as Texas, who do not collect state income tax and rely heavily on sales tax for funding. In 2014, Texas estimated that, if it could tax online stores, it would gain as much as $800 million in annual state sales tax and that local governments would gain $200 million.
On April 17, the US Supreme Court will take the issue of sales tax up once again in South Dakota v. Wayfair Inc. Interestingly, the US Solicitor General thinks this an important enough issue that he has submitted an amicus brief and sought time to speak during oral argument.
Last week, Congress passed a spending bill, which addressed numerous tax issues. It was likely their last opportunity to address collection of sales tax from online merchants prior to the impending Wayfair oral arguments. Indeed, one representative submitted legislation for consideration. However, it was not included in the spending bill and, should the Court reverse the Quill ruling, “online sellers and customers will confront a cacophony of state rules.”