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Year in Review 2018: Internet Sales Tax

On June 21, 2018, in South Dakota v. Wayfair, the U.S. Supreme Court reversed fifty years of precedent by allowing states to collect sales taxes from businesses located completely outside that states’ borders. Allowing this remote taxation undercut healthy tax competition among the states, introduced the threat of crippling compliance costs for smaller online retailers, and emboldened 31 states to move forward with their sales tax expansion plans.

Implementation of these taxes has either only recently begun or is scheduled to begin in 2019, so the practical consequences of the decision are not yet fully evident. The coming year will show the real impact of remote taxation and collection for consumers and small-to-midsized retailers, which will likely mean more money out of consumers’ pockets and higher compliance costs for sellers.

Some states have labored to stay within the policy boundaries that the Wayfair decision suggested in crafting their new tax laws. But others have not, and legal challenges to those states’ tax laws should be expected in the new year. However, some states have already begun to be disappointed by the exaggerated tax windfall predictions and more of that should also be expected in 2019.

Congress enters 2019 a divided branch of government, but still remains constitutionally in control of interstate commerce. It retains the authority to intervene to stop this cross-border taxation, but will likely lack the political will to do so. House attempts to stem the damage of the decision and order the states implementation of these new taxes stalled in 2018, and the next Congress looks to be an even more challenging environment for opponents of tax increases.

Previous posts in the Year in Review 2018 series: