On June 21st, 2018, the Supreme Court of the US (SCOTUS) overruled 1992’s Quill Corp v. North Dakota case in South Dakota v. Wayfair in a 5 to 4 vote.
Back in 1992, Quill stated that US states could only change sales taxes on companies with a physical presence in the state. Effectively, Quill determined how state taxes worked with e-commerce from the web’s first days. Started in 1956, Quill, a direct and mail order office supply retailer, has grown to be one of the largest business-to-business office supply retailers in the U.S. at over $1 billion in annual sales with 70% of that coming from internet sales. Quill was acquired by Staples, Inc. in 1998.
The 1992 Court did not have before it the present realities of the interstate marketplace or how the Internet’s prevalence and power would change the dynamics of the national economy. Here’s some of the 2018 reasoning…
In 1992, less than 2 percent of Americans had Internet access. Today that number is about 89 percent. Likewise in 1992, mail-order sales in the United States totaled $180 billion. Last year, e-commerce retail sales alone were estimated at $453.5 billion by the Dept. of Commerce. Combined with traditional remote sellers, the total exceeds half a trillion dollars. Since the Department of Commerce first began tracking ecommerce sales, those sales have increased tenfold from 0.8 percent to 8.9 percent of total retail sales in the United States.
In 1992, it was estimated that the States were losing between $694 million and $3 billion per year in sales tax revenues as a result of the physical presence rule. Now estimates range from $8 to $33 billion.
Now, under this new decision, even if a company doesn’t have a store, warehouse, or office in a state, its internet sales to that state’s residents can be taxed. Previously, the residents purchasing mail-order or online were supposed to self-report and pay sales tax – and well, you can guess how well that went. With this recent decision reversal, sellers will now be responsible for collecting and paying each state’s sales tax.
But simply entering the tax rates of 45 of the 50 U.S. states with a sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon do NOT have a state-wide sales/use tax) isn’t ALL with which online e-tail sellers may need to contend. Most states, but not all, exempt (unprepared) food items from sales tax. Others may charge LESS THAN the general state rate on food. Some states, such as Pennsylvania, New Jersey and Minnesota, completely exempt some items like clothing from sales tax, while others, such as Vermont, New York and Massachusetts, exempt clothing only UNDER a certain total dollar amount.