NRF supports a level playing field where all retailers play by the same sales tax rules regardless of whether they sell their merchandise in a store, through the mail or over the internet. For more than 25 years, however, sales tax on most online purchases went uncollected because of a 1992 U.S. Supreme Court ruling that said sellers could only be required to collect sales tax in states where they had a physical presence such as their headquarters, an office, store or warehouse. That ruling was overturned in 2018 and sales tax is now collected on most online sales.
Why it matters to retailers
With the growth of the internet, local stores have faced increasing competition from large out-of-state online sellers who easily undercut them on pricing because of low overhead and high volume. With sales tax amounting to 10 percent in some areas, online sellers who were not required to collect sales tax held a significant price advantage over local bricks-and-mortar stores, and many Main Street retailers found their customers were buying online to avoid the tax. With as much as $25 billion in sales taxes going uncollected each year, the disparity threatened jobs provided by local retailers and became worse as more shopping moved online
NRF advocates for sales tax fairness
In 1992’s Quill Corp. v. North Dakota ruling, the Supreme Court said regulations in more than 6,000 state and local sales tax jurisdictions across the country were too complex for sellers to know how much to collect unless they were doing business locally.
NRF initially responded by supporting the Streamlined Sales and Use Tax Agreement, under which participating states agreed to simplify their sales tax laws. More than half of the 45 states with a sales tax ultimately joined, but NRF-backed legislation allowing those states to require online sales tax collection never won final passage despite being repeatedly introduced in Congress.
NRF and other sales tax fairness advocates changed tactics after Justice Anthony Kennedy wrote in a 2015 opinion that the court made a mistake in Quill by relying on an out-of-date precedent and invited opponents to bring a new case. The following year, South Dakota enacted a law requiring online merchants with more than $100,000 in annual sales to state residents or 200 transactions with residents to collect sales tax
The South Dakota measure was challenged by online retailers. But NRF filed a brief in support of the law, saying the 1992 theory that sales tax laws were too complex for out-of-state sellers to know what to collect was no longer valid because software is now available to automatically collect the tax owed. The case resulted in the 2018 South Dakota v. Wayfair decision allowing states to require online sellers to collect sales tax the same as local stores. NRF welcomed the ruling, saying retailers “have been waiting for this day for more than two decades.”
Since the Wayfair decision, virtually every state that has a sales tax has adopted “economic nexus” legislation permitting the state to require online sellers that have a minimal presence – similar to the $100,000 in sales and 200 transactions requirement of South Dakota – to collect and remit sales taxes. In addition, most have enacted legislation requiring online marketplaces – ecommerce websites where multiple parties sell products – to collect and remit sales taxes on behalf of their sellers.