Supreme Court Case Over Online Sales Tax Could Mean Big Changes for Some Promo Businesses

The arguments in South Dakota v. Wayfair, the ongoing Supreme Court case dealing with the prospect of charging state sales tax on online purchases, wrapped up on Tuesday, with some expected results—right-leaning judges such as Neil Gorsuch and Clarence Thomas seemed to be in favor of allowing states to force out-of-state retailers to collect sales tax—and some unexpected results, like left-leaning judge Ruth Bader Ginsburg agreeing.

The issue for states like South Dakota and Pennsylvania is that they're losing out on tax revenue when people buy from e-commerce platforms with no presence in their states.

"Our states are losing massive sales tax revenues that we need for education, healthcare and infrastructure," South Dakota Attorney General Marty Jackley said in court, according to the Meadville Tribune. "Our small businesses on Main Street are being harmed because of the unlevel playing field."

https://twitter.com/MaxBehlke/status/986622807412019200

The primary concern is that large online sellers may have a major nationwide (and global) presence, but no real presence outside of their company headquarters, meaning people can purchase goods without worrying about their local sales tax.

In an essay for CNBC, Steve DelBianco, president and CEO of NetChoice, expressed concerns that if the Supreme Court were to side with South Dakota, it could do more harm to Main Street than it would for Amazon and other e-commerce giants. He said that if the Supreme Court were to overturn Quill vs. North Dakota, the 1992 legislation that acts as legal precedent for the current case, it "will devastate small business from Topeka to Toledo:"

Those seeking to overturn Quill–including President Donald Trump–think this is a way to force large internet retailers like Amazon to pay more sales taxes. They are gravely mistaken. Amazon has physical presence across all states and therefore is already required to remit sales tax. Nineteen of the 20 largest e-retailers do the same.

Rather, the debate over Quill is about small internet retailers, often operating out of the owner's home. Laws like South Dakota's will stifle these small retailers trying to make ends meet, squashing Amazon's next competitor before it gets off the ground.

“Under Quill, if a customer purchases a book from a bricks-and-mortar bookstore in a state with a sales tax, the bookstore is legally obligated to collect the tax. But if a customer purchases the same book from an online bookstore without a physical presence in that state, the online bookstore cannot be subjected to the same legal obligation—which means, in practical terms, that the customer will not pay sales tax,” the American Booksellers Association wrote in a brief, according to Racked. “This artificial imbalance creates a powerful incentive for customers to buy books online rather than from their local bookstore, and as such, causes significant competitive harm to those bookstores.”

Brick-and-mortar businesses, relying on foot traffic and local purchases, are in favor of changing the legislation and giving shoppers an incentive to shop small and local again. Amazon, meanwhile, already pays local sales taxes in 45 states. That leaves smaller internet sellers as the odd man out.

For the promotional industry, it's an interesting situation—especially for distributors that primarily sell online. Given how tax regulations differ from state to state, it could lead to massive accounting headaches, and would require increased coordination between suppliers and distributors depending on their locations and the location of end-buyers. That along with potential shakeups in purchasing habits if orders suddenly get more expensive for buyers with sales tax factored in.

A decision on South Dakota v. Wayfair is expected by the end of July. View more information here.