Trump Administration Backs Internet Taxes at U.S. Supreme Court

(Bloomberg) -- The Trump administration urged the U.S. Supreme Court to let state and local governments collect billions of dollars in sales taxes from online retailers.

Taking the side of traditional retailers, the administration said Monday that the court should uphold a South Dakota law that would collect sales taxes from large Internet retailers even if they don't have brick-and-mortar stores in the state.

The government said the court might have to overturn a 1992 ruling that said states can't force merchants to collect taxes unless they have a “physical presence" there.

Online retailers Wayfair Inc., Overstock.com Inc. and Newegg Inc. are opposing South Dakota in the court fight, saying Congress should set the rules for online taxes. Each company collects sales taxes from customers in only some states.

The justices are scheduled to hear arguments on April 17 and a ruling is expected by late June.

"In light of Internet retailers' pervasive and continuous virtual presence in the states where their websites are accessible, the states have ample authority to require those retailers to collect state sales taxes owed by their customers," Solicitor General Noel Francisco said in a court brief.

‘Competitive Disadvantage'

Allowing some out-of-state retailers to avoid collecting sales taxes "imposes a competitive disadvantage on in-state retailers and encourages the state's citizens to take their business elsewhere," the government said.

State and local governments could have collected up to $13 billion more in 2017 if they'd been allowed to require sales tax payments from online merchants and other remote sellers, according to a report from the Government Accountability Office, Congress's nonpartisan audit and research agency. Other estimates are even higher. All but five states impose sales taxes.

Those supporting South Dakota at the high court include 35 other states, as well as lawmakers who say they've been trying for years to get Congress to address the issue.

The case will also affect Amazon.com Inc., though the biggest online retailer isn't directly involved. When selling its own inventory, Amazon charges sales tax in every state that imposes one, but about half of its sales involve goods owned by third-party merchants. For those items, the company says it's up to the sellers to collect any taxes, and many don't.

The case is South Dakota v. Wayfair, 17-494.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Laurie Asséo

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