Bolstering state income with online sales tax

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PIERRE, S.D. (KOTA TV) - South Dakota will begin collecting sales tax from most online retailers starting this November.

In a special session of the legislature on Wednesday, the House and Senate passed two bills requiring anyone selling products to South Dakotans pay sales tax on those purchases.

Governor Dennis Daugaard called the action 50 years in the making, referencing two Supreme Court cases barring states from collecting taxes from online businesses.

In 1992, the Supreme Court ruled in favor of business in Quill Corp. v. North Dakota arguing it would be too difficult for businesses to comply with different tax laws in each state. They ruled state governments could not tax online transactions unless the business has a physical presence in the state.

With local tax growth slowing, the legislature looked to craft legislation to overturn Quill. In 2016, they passed Senate Bill 106 (SB 106), which called for collecting taxes from online retailers and directly conflicted with the Quill decision.

"The reason for this bill was simple. We wanted to start the lawsuit that would get us to the the U.S. Supreme Court so we could over turn Quill," Daugaard said.

Fast forward to June of 2018, the Supreme Court ruled in favor of South Dakota in South Dakota v. Wayfair, INC., opening the flood gates for all 50 states to start collecting sales tax from online retailers.

The win comes as welcome news for the people at the South Dakota Retail Association, who say it's local, tax paying businesses that support our communities.

"SDRA has maintained that it's members are not afraid of competition as long as it is fair competition," said lobbyist for SDRA Jim Hood. "Before they even open their doors, South Dakota brick and motor retailers are at a 6.5% competitive disadvantage."

However, SB 106 tied the state's hands until after all litigation was settled. After making their ruling, the Supreme Court sent the case back down to a lower court, effectively barring South Dakota from collecting sales tax until the case is settled. That's why the governor called for a special session.

SB 1 amended the original law to allow the state to start collecting sales tax from online retailers except for the three companies in the lawsuit starting November 1.

The other bill, SB 2, stipulated who will collected the taxes when the transaction is made through a marketplace provider. Simply put, if a business sells a product through companies like Amazon or eBay, the marketplace company is required to collect the tax.

Not everyone is on board with the decision.

"What we are forgetting is we just drafted every poor small business man who deals with the internet to collect taxes for 49 other states." said Republican Senator Stace Nelson from district 19. Nelson says there are small businesses in South Dakota selling their products around the country who now may be required to pay sales tax in the other 49 states.

At least in South Dakota, only online retails bringing in more than $100,000 or 200 transactions will be required to register with the state and collect taxes.

Still many legislators are praising the win as a victory for the state.

"I think it's a win for small business because it's a level playing field," said Republican Representative Tim Goodwin of district 30. "You no longer just have people coming in to local retailers looking at business getting educated and then going home and ordering it online and not paying the tax. I think it's actually going to be a win for the tax payers."