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To the great disappointment of many small business owners and supporters of federalism, the Supreme Court’s recent decision in Wayfair vs. South Dakota opened the door for states to impose an internet sales tax, even on businesses that have no physical presence in their borders. Because Congress has the constitutional authority to regulate interstate commerce, it is now considering ways to address this newfound taxing authority. Congress must take this opportunity to use its power to protect small businesses from these taxes and perhaps to at least work to slow the process down while a long term solution is explored. The strength of the American economy depends on it.
Prior to the Supreme Court’s ruling in the Wayfair case, retailers were only required by law to collect and remit state sales taxes if they had a physical presence — such as storefronts, warehouses, or factories — in that state. The so-called “Quill Standard” was the result of a previous Supreme Court ruling in Quill Corp. v. North Dakota (1992).
But South Dakota, as well as a number of other states, asked the high court to overturn Quill, targeting the online home-goods retailer Wayfair and two other large online retailers with millions of dollars of sales to South Dakotans businesses, arguing that the state was missing out on revenue from online transactions, even though the companies have no physical presence in South Dakota. The Court agreed that the large retailers who were targeted by South Dakota were not protected by the Quill physical presence standard, but in overturning precedent the Court may expose millions of that protected small businesses to the from taxing authorities in other states.