Friday, September 21, 2018

U.S. Justice Supports State Efforts to Collect Internet Sales Taxes

By on March 16, 2018

SAN JUAN – The U.S. Department of Justice (DOJ) has filed a brief in the U.S. Supreme Court supporting state efforts to collect internet sales taxes.

U.S. Solicitor General Noel Francisco wants the top court to limit a 1992 ruling that allowed states to collect sales taxes but only from companies with a physical presence in their jurisdiction.

The top court ruled in the 1992 case, Quill v. North Dakota, that states could not tax mail-order products delivered from other states through common carrier or the U.S. Postal Service. Internet retailers such as Amazon have used the ruling to avoid collecting state sales taxes. Because Congress has refused to pass legislation allowing states to collect sales taxes from internet retailers, many U.S. jurisdictions, like Puerto Rico, have been unable to collect sales taxes they are owed from online sales.

Amazon to charge Puerto Rico sales tax

The Justice Department’s brief was filed in the case South Dakota vs. Wayfair Inc., which is before the Supreme Court after that state passed a law seeking to collect the sales tax from online retailers.

“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. Quill Corp. v. North Dakota should not be read to bar that result, both because the Quill Court did not and could not anticipate the development of modern e-commerce, and because Quill’s analysis was deeply flawed,” the solicitor general said.

Francisco said that requiring states to collect sales taxes only from businesses that have a physical presence in their jurisdictions bears no logical relationship to current economic conditions, and imposes intolerable burdens on the states’ ability to collect tax revenue they are lawfully owed. “The nature of an internet retailer’s presence in the states where its website is accessible is different in kind from any type of ‘presence’ that the court could have anticipated…. And given the proliferation of such retailers, imposition of a physical-presence requirement would substantially impede state tax collection and…distort retailers’ choices of appropriate business models,” the solicitor general said.

According to stateside reports, the precedent established in Quill could be overturned because at least two justices, who wrote in favor of that ruling, have now changed their minds.

Thirty-five states, led by Colorado, have also filed a friend of the court brief, urging the top court to overturn its previous precedent.

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