Trump administration backs states' bid to collect online sales taxes

[March 06, 2018]  By Andrew Chung

WASHINGTON (Reuters) - The Trump administration on Monday said states should be able to require online retailers to collect sales taxes, backing an appeal by South Dakota at the U.S. Supreme Court that could mean billions of dollars in revenue for state coffers.

South Dakota is asking the justices to overturn a 1992 Supreme Court ruling that companies with no physical presence in a state are not required to collect a state sales tax on purchases. A lower court decision favored Internet retailers Wayfair Inc, Overstock.com Inc and Newegg Inc in the dispute.

In a legal brief filed on Monday with the Supreme Court, the U.S. Department of Justice said the 1992 ruling may have to be overruled because it no longer fits with the rise of modern day e-commerce in which online retailers can replicate the shopping experience of a physical store even where it has no physical property.

"A physical-presence requirement ... bears no logical relationship to current economic conditions, and imposes intolerable burdens on the states’ ability to collect tax revenue they are lawfully owed," Solicitor General Noel Francisco said in the brief.

The U.S. Government Accountability Office estimated in a November report that states and municipalities could gain between $8 billion and $13 billion in annual revenue if they could require online retailers to collect sales tax. Forty-five of the 50 states have a statewide sales tax.

Some online retailers, including leading player Amazon.com Inc, already collect state sales tax but others do not.

President Donald Trump waves upon his arrival in West Palm Beach, Florida, U.S., March 2, 2018. REUTERS/Kevin Lamarque

Traditional retail industry groups argue that e-commerce businesses have an unfair advantage over brick-and-mortar competitors by being able to avoid collecting sales tax. Various trade groups and 35 states had urged the high court to take up South Dakota's appeal.

South Dakota enacted a law requiring out-of-state retailers to collect sales tax in 2016 and filed suit against four retailers soon after the law was enacted: Wayfair, Overstock.com, Newegg Inc and Systemax Inc. Systemax agreed to collect the tax, while the other companies contested the state law.

In a September 2017 ruling, the South Dakota Supreme Court, citing the 1992 precedent, ruled against the state.

The Supreme Court will hear arguments in the case in April and make a decision by the end of June, when its current term ends.

(Reporting by Andrew Chung; Additional reporting by Lawrence Hurley; Editing by Cynthia Osterman)

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