Last week, the United States Supreme Court decided to consider a case involving a recently-passed state law in South Dakota that requires out-of-state retailers to collect sales taxes. Last September, the South Dakota Supreme Court declared the new state law unconstitutional based upon the 1992 United States Supreme Court decision in Quill. v. North Dakota. Quill provided that a business could not be required to collect and remit sales taxes to a state if it had not established a physical presence there.
For over 25 years, Quill has represented the law of the land regarding collection of state and local sales taxes on remote sales. By electing to hear this case, the Supreme Court has essentially decided to reconsider the Quill decision in light of the totally different retail landscape today (as compared to the one that existed in 1992). In today’s world of e-commerce and Internet sales, Quill allows a large portion of online retail transactions to escape state and local sales taxes nationwide.
What does the Supreme Court’s decision to hear the South Dakota appeal mean for Texas cities? If the Court were to overturn the Quill standard in a broadly-applicable way, it might open the door for the Texas legislature to adopt a law resembling South Dakota’s that would require out-of-state and online retailers to collect state and local sales taxes on remote sales. If—and it’s a rather big “if” at this point—all of those dominoes were to fall, many Texas cities could expect to see a significant boost in sales tax collections due to the broadening of the sales tax base.
At this point the Court is expected to hear oral arguments in April, with a ruling coming in late June. League staff will continue to monitor the case closely and report on any future developments.