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South Dakota court rejects law aimed at online sales taxes

Staff Writer |
South Dakota's Supreme Court struck down a law that would require out-of-state retailers to collect sales taxes on in-state purchases—a defeat the state expected and welcomed in a case that eventually could have national implications for e-commerce.

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Attorney General Marty Jackley hopes to persuade the U.S. Supreme Court to reconsider rulings issued mostly before the online shopping boom that exempt retailers from having to collect sales taxes in states where they have no physical presence. He said they give out-of-state online retailers an unfair competitive advantage over local retailers.

"Today's decision paves the way to respectfully request the U.S. Supreme Court to provide that much needed fairness to save main streets and jobs across South Dakota," Jackley said in a statement.

South Dakota has no income tax and depends heavily on sales taxes, and the state estimates it loses about $50 million in tax revenue annually to e-commerce. Jackley said the U.S. Supreme Court should particularly reconsider its 1992 ruling in a North Dakota case "in light of the extraordinary growth of the internet and the exponential technological advances that have been made in the last quarter century."

States have pushed Congress to address the issue without success so far, and one estimate put the loss to states at roughly $26 billion in 2015. South Dakota is the furthest along of several states attempting to overturn the precedent.

Many e-commerce companies rely on the 1992 ruling to avoid collecting state sales taxes, while some, such as Amazon, do so despite the precedent. Online retailers Wayfair, Overstock and Newegg challenged the South Dakota law at the trial court level.

The state Supreme Court acknowledged that as online sales have risen, South Dakota's revenues have decreased.

That prompted the Legislature to pass the law with little opposition last year as a deliberate challenge to several U.S. Supreme Court rulings on how to apply the Commerce Clause of the Constitution, which generally gives Congress exclusive authority to regulate interstate trade.

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