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South Dakota v. Wayfair: What It Means




The power to tax is the power to destroy. In South Dakota v. Wayfair, the Supreme Court threw out its physical presence standard, allowing states to tax commerce between their citizens and retailers located beyond their borders. How will states use this new taxing power? As Andrew Moylan and Andrew Wilford write, lawmakers who put new tax bills forward hastily will risk crushing the smaller internet retailers and the competition they provide:

As the Court notes, the internet has served as a means of allowing new retailers to reach the same consumer base that established nationwide retailers already have access to. It can be extremely difficult for new retailers to contend with the complexity inherent in a system with 45 states (and D.C.) having their own sales tax regimes and an estimated 12,000 tax jurisdictions.

Tax compliance is already a greater burden for smaller retailers. A 2014 study by the National Association of Manufacturers found that the cost of tax compliance was over $1,500 per employee for businesses with fewer than 50 employees, but under $700 for businesses with more than 100 employees.

Considering that many affected businesses will be small groups selling products on platforms like Etsy, this cost could be prohibitive. The giants of retail, such as Amazon and Walmart, already have physical presence in the form of stores or distribution warehouses spread across the country. This means that theyalready collected sales tax, and the Wayfair decision won’t change their tax bills much. It will be the small retailers that have to invest the substantial time and effort into complying with multiple tax regimes, or possibly change their business models. […]

In positively citing the small seller exception in South Dakota’s law, the Court gave some support to the notion that states ought to distinguish between large businesses with many resources to handle tax compliance and smaller ones that would be crippled by complex tax obligations. Even this guidance is subject to dispute, however, since it is quite broad and not contained in the actual holding of the Court.

[Andrew Moylan and Andrew Wilford, “South Dakota v. Wayfair: What it Means,” National Taxpayers Union Foundation, August 23]


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