In 1992, the Supreme Court rendered a decision in the case of Quill Corp. v. North Dakota that limited states’ ability to collect taxes on digital businesses. Now that digital business is a much bigger part of the economy, it seems that the government wants a bigger piece of the pie.
35 states are arguing for a complete revisiting of the decision, stating that they are losing out on between US $8 and $13 billion in tax revenue in 2017 alone. This may just be enough money to gain the ear of the Court, who is hearing arguments on the topic in April. According to experts, we should expect a ruling on the matter by June of this year.
SCOTUS is actually following the lead of South Dakota, which attempted to make out of state digital vendors pay taxes within the state if they did an inordinate amount of business there. The purpose of the law was to get revenues from Systemax, Wayfair and Newegg. Only one of the companies complied with the state order, and South Dakota took the other two to court. South Dakota lost the case.
The state then appealed to the Supreme Court based on statements that justices had made in previous cases that South Dakota thought was relevant. The state also brought to the table the complaints of brick and mortar store owners. This group claimed that digital companies being exempt from taxes put the traditional storefront at an unfair disadvantage in the marketplace.
Even if the Supreme Court rules to revisit the Quill ruling and allow states to collect taxes from digital companies like ecommerce web designer businesses, Congress will have to become involved before anything practical will change. This process will undoubtedly be affected by lobbyists and more political red tape in the legislative branch.
Digital business owners claim their industry would be hurt if the Quill decision is revisited in a negative way or overturned completely. They make the argument that companies like Amazon would not have been able to grow under the pressures of state taxes. The entire purpose of going digital, these companies say, is to expand business beyond the borders of the state.
Additionally, the administration that would be required to calculate and collect these taxes would add too much red tape to the tax process. Digital companies would possibly be on the hook for taxes in all 50 states. This would be an overwhelming burden on the market, they argue.