July 3, 2018

In a landmark decision announced June 21, the United States Supreme Court took a major step toward sales tax fairness when it voted to overturn a 1992 judgement (Quill Corp v. North Dakota) that was creating an uneven playing field on sales taxation for traditional and online sellers by prohibiting states from collecting sales taxes from sellers that do not have a physical presence in-state, i.e. e-commerce businesses. While change may not be immediate, Jewelers of America offers an overview of the case and what’s to come so jewelers can begin to plan for how the ruling may impact their businesses.


The Case: South Dakota v. Wayfair

At issue in the case, argued on April 17, was South Dakota’s sales tax fairness law, which had been ruled unconstitutional by the South Dakota Supreme Court in September 2017. It requires online merchants with more than $100,000 in annual sales to state residents or 200 transactions with state residents to collect sales tax.  In siding with South Dakota and overturning Quill, the Court opens up the opportunity for other states to charge sales tax on businesses that do not have a physical presence, but sell to consumers in the state through online and/or remote sales.


How The Decision Opens Path to Sales Tax Fairness


Sales Tax Before the Ruling

Consumers are already legally required to report untaxed purchases and pay the sales tax as “use” tax, but there is little awareness around the law and compliance has been extremely low. Back in 1992 when the Supreme Court made the initial Quill decision, the Internet barely existed, with most remote sales coming from catalogs. With the rise of the Internet and e-commerce sales, brick-and-mortar jewelry businesses began to experience a growing number of consumers who viewed their stores as “showrooms,” only to see those sales go to sales-tax-free online competitors.

For more than two decades, Jewelers of America advocated for sales tax fairness, arguing that if online businesses sell the same products to the same customers in the same neighborhoods as traditional stores do, then they should be required to adhere to the same tax laws.

Plus, states and communities lose out on much-needed revenues to support education and infrastructure; states stand to lose more than $211 billion in remote sales tax revenue from 2018-2022 without sales tax fairness.


An End to Showrooming?

Jewelers of America supported South Dakota’s arguments to the U.S. Supreme Court, providing supporting evidence with other retail organizations in legal briefs last October and again in March. JA Members provided testimonials of how this issue directly affected their sales – often siting losing sales to showrooming. This could change with the latest ruling.

The U.S. Supreme Court indicated in its decision that South Dakota’s law could serve as a model for other states seeking to collect sales tax from out-of-state sellers, noting that it was not an undue burden on sellers since it is not retroactive and requires only merchants who do a considerable amount of business in the state to collect.

What is a “considerable amount” of business? That’s determined state by state, but for South Dakota the threshold is: online merchants with more than $100,000 in annual sales to state residents or 200 transactions with state residents to collect sales tax. In siding with South Dakota and overturning Quill, the Court opens up the opportunity for other states to charge sales tax on businesses that do not have a physical presence, but sell to consumers in the state through online and/or remote sales.


What's to Come

The 45 states that collect sales tax will review their current laws and regulations in order to implement sales tax collection.

The U.S. Supreme Court opinion also cited the Streamlined Sales and Use Tax Agreement (SSUTA) – which South Dakota is a part of – as a pathway for states. Under that agreement, which currently includes 24 states, states have standardized their systems to reduce administrative and compliance costs including requiring a single, state level tax administration, uniform definitions of products and services, simplified tax rate structures and simplification of tax returns and remittances. It also provides sellers access to sales tax administration software paid for by the state.


Timing

Companies that sell online should begin to prepare for the changes, though they will not be immediate in most states. While a number of laws – including South Dakota’s – are in place, states may be required to take further action. For example, while the law in South Dakota was enacted in 2016, there has been a circuit court injunction that prevents it from moving ahead. With the Supreme Court’s ruling, the case returns to the South Dakota court system for further proceedings. For a number of states, there may not be activity until after state legislatures are back in session in 2019. Others may look to collect via changes to state regulations, versus laws.


JA's Advocacy Continues


Jewelers of America believes federal legislation may still be needed and supports efforts by Congress to pass sales tax fairness. At the same time, we’ll be watching the state implementation process. We’ll be keeping a close eye to ensure it achieves the goal of leveling the playing field for our brick-and-mortar members, while not proving to be an undue burden for small businesses that sell online.

JA will provide updates for our members as needed, continuing to offer the essential information and tools they need to navigate the changes.

More Information


  • National Retail Federation
  • National Jeweler
  • Streamlined Sales Tax Governing Board - Includes information on Certified Service Providers, who offer sellers services that include everything from registering them to collect sales tax in the 24 states that are part of the Streamlined Sales and Use Tax Agreement (SSUTA) to reporting and filing state level returns. The site also provides information on how online sellers can register on their own to collect sales tax in states that require it.
Follow Us: Facebook Twitter Pinterest Instagram Linkedin