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Early Signs Show Supreme Court May Not be Retailers’ Ideal Ally in Online Sales Tax Battle

The online sales tax battle landed in the U.S. Supreme court Tuesday, and the outcome could have wide-ranging implications for retailers of all types—as well as the states in which they do business.

At issue is whether e-commerce companies should be made to collect state and local sales taxes no matter where they’re based. Currently, these businesses are exempt from having to do so if they’re not physically located there thanks to a 1992 Supreme Court ruling in the Quill v North Dakota case.

After e-commerce took off, however, the decision came under fire from local governments that feel they’re being shortchanged as well as brick-and-mortar retailers, who have consistently said it puts them at a disadvantage. South Dakota pressed the issue recently, passing a law requiring e-commerce stores to pay up, which resulted in a lawsuit between the state and Wayfair, Newegg and Overstock.

But even with the case landing in the High Court, there’s no guarantee these groups will get the outcome they desire. And if the first day of the hearings is any indication, they should prepare themselves for the worst.

According to multiple reports, the Court seemed unsure whether the issue is one that should even be decided in this forum. The Associate Press reported that Justice Elena Kagan questioned whether Congress would be better equipped to handle the nuances of the issue. She’s reported as saying Congress is “capable of crafting compromises and trying to figure out how to balance the wide range of interests involved here.”

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Justice Sonia Sotomayor said “I’m concerned about the many unanswered questions that overturning precedents will create a massive amount of lawsuits about.”

For his part, Justice John Roberts isn’t convinced it’s a problem at all since it seems to be working itself out.

With weeks to go before a decision is reached, retail associations are maintaining their stance.

“Online-only retailers continue to methodically order their businesses to take advantage of the legal loophole in a way that shortchanges citizens by failing to collect the taxes that are owed and then trading off the illusory price advantage in a manner that undercuts local businesses—forcing many to the brink of extinction—thereby further eroding the local jobs and tax base,” Retail Industry Leaders Association (RILA) general counsel and Retail Litigation Center president Deborah White said in an op/ed that ran in The Hill on Tuesday.

Failure to do so, she said, would mean the demise of local businesses as well as a potential tax hike at the local and state level to balance the lost revenue.

Part of the Justices’ reasoning in the Quill case was that it would be too difficult for these companies to calculate taxes from their remote locations. In a release from RILA earlier this week, Brian Dodge, senior executive vice president of public affairs, addressed this point head on.

Dodge said the idea that having to calculate sales tax in more than 2,200 jurisdictions across the country is too arduous a task for e-tailers to undertake today is “ridiculous.”

“Many of these same companies use micro-targeting data to narrowly market to unique sets of consumers and calculate shipping costs based on an array of factors, such as distance, weight and fragility,” he said. “The same advances in technology that have simplified these tasks have also radically simplified collecting and remitting sales tax.”

The National Retail Federation echoed this opinion in a separate statement released Tuesday.

“This case is largely about whether collecting sales tax is an undue burden on interstate commerce,” NRF president and CEO Matthew Shay said. “That might have been the case in 1992 but technology has eliminated that concern just as it has transformed the retail business and so much of the rest of our world. Today, there’s an app for that.”

Shay said the group is “hopeful” that by taking the case on, the Supreme Court is signaling that it’s ready to make a change.