To understand the current state of the Internet sales tax issue in 2018, one must first understand the history of the topic. States and online retailers have spent significant amounts of time and money battling over the issue as well as a tax on digital goods. But why? The answer is found in the refusal of the Supreme Court to step in and update a legal standard that was established well before this Internet thingy [“thingy” is a Latin word. Go with it.] matured as an economic platform and radically changed the consumer markets around the world.
Sales Tax History
The 1990s are known for many things. In tax and legal circles, the decade is known for a case named Quill Corp. vs. North Dakota. Quill is a Supreme Court decision that addressed the question of whether states could force out of state retailers to collect and remit sales tax on catalog sales. This video digs into the specifics and how the Supreme Court ruling made a mess of things once the Internet came on the scene.
[Click to view a video on the Internet sales tax Supreme Court decision that changed everything – South Dakota vs. Wayfair.]
As an aside, the actions of the Supreme Court represent an example of how the Court views its role in establishing laws. The Court typically selects cases for review that will set fundamental standards in a particular niche of law. The standard may be based on an esoteric issue or something more general such as a change in society.
In the current situation, the Court is acknowledging a fundamental change in society. With the Internet, the concept that state borders should be used as part of a test in establishing a duty becomes a bit ridiculous. No such borders exist online. While Wayfair addresses an online tax issue, it also announces to governments, politicians, judges, and lawyers that the Court will now be recognizing the unique nature of the Internet in future cases. Any areas of law relying on antiquated physical factors that are no longer relevant in a digital world are ripe for reconsideration.