The last time the Supreme Court took the fashion industry by storm was in the Star Athletica case. This summer, it did it again with South Dakota v. Wayfair, Inc. While we can all agree that tax law is not as sexy as copyright (at least, to an IP attorney), the holding is by far more impactful on the fashion industry as a whole than a regurgitation of what the Copyright Act stands for.
In South Dakota v. Wayfair, Inc., the Supreme Court ruled that internet retailers can be required to collect sales taxes even in states where they have no physical presence. The decision overturned Quill Corp. v. North Dakota (1992) which held that the Dormant Commerce Clause barred states from compelling retailers to collect sales or use taxes in connection with mail order or Internet sales made to their residents unless those retailers have a physical presence in the taxing state.
In South Dakota, the issue arose because the state government was concerned about the erosion of its sales tax base and corresponding loss of critical funding for state and local services. South Dakota estimated a loss of between $48 to $58 million annually as a result of the State’s inability to collect sales taxes on businesses that have no physical presence in the state.
As a result, the South Dakota legislature enacted a law require out-of-state sellers to collect and remit sales tax “as if the seller had a physical presence in the State.” The Act covers only sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State. Wayfair complained, as it did not have a physical presence in the State. South Dakota filed suit in state court, seeking a declaration that the Act’s requirements are valid and applicable to Wayfair. Both the trial court and the State’s Supreme Court agreed with South Dakota; and so did the Supreme Court.
Writing for the majority, in a a 5-to-4 ruling, Justice Anthony M. Kennedy wrote that “Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers . . . Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own.”
Ecommerce has changed since 1992, and the South Dakota decision seems to level the playing field between main street and online sales platforms. The question remains whether this will overwhelmingly impact new ecommerce market entrants, rather than the online behemoths the Supreme Court had in mind. When the decision came out Amazon’s stock price dropped, more here.