WASHINGTON (Reuters) – The U.S. Supreme Court on Tuesday appeared hesitant to let states force out-of-state online retailers to collect sales taxes on purchases, with some of the justices saying Congress would be best suited to resolve the matter.
The nine justices heard a one-hour argument in the closely watched case pitting South Dakota against e-commerce businesses, a fight potentially worth billions of dollars that could affect states’ coffers and consumers’ wallets.
South Dakota asked the justices to overturn a 1992 Supreme Court precedent that states cannot require retailers to collect state sales taxes unless the businesses have a “physical presence” in the state.
Some of the justices appeared to agree with the companies that a ruling striking down the 1992 precedent would lead to a scramble among states to pass their own laws that could impose varying burdens on small businesses.
“Congress is capable of crafting compromises,” Justice Elena Kagan said.
Along similar lines, Justice Sonia Sotomayor said the questions raised in the case are fraught with difficulties.
But it remained unclear how the court will rule as several members of the court, including the often-pivotal Justice Anthony Kennedy and Trump’s appointee Neil Gorsuch, appeared sympathetic to South Dakota.
A ruling favoring South Dakota could eventually lead to online customers paying more for many purchases.
Such a ruling could help small brick-and-mortar retailers compete with online rivals while delivering up to $18 billion into the coffers of the affected states, according to a 2017 federal report. The justices are due to decide the case by the end of June.
South Dakota depends more than most states on sales taxes because it is one of nine that do not have a state income tax. South Dakota projects its revenue losses because of online sales that do not collect state taxes at around $50 million annually, while its opponents in the case estimate it as less than half that figure.
The justices heard the case against a backdrop of Trump’s harsh criticism of Amazon.com Inc(AMZN.O), the dominant player in online retail, on the issue of taxes and other matters. Trump has assailed Amazon CEO Jeff Bezos, who owns the Washington Post, a newspaper that the Republican president also has disparaged.
Amazon, which is not involved in the Supreme Court case, collects sales taxes on direct purchases on its site but does not collect taxes for items sold on its platform by third-party venders, amounting to about half of total sales.
South Dakota is supported by industry groups representing major retailers that have brick-and-mortar stores, and therefore already collect state sales taxes. The National Retail Federation, which supports the state, has a membership that includes Walmart Inc(WMT.N) and Target Corp(TGT.N), as well as Amazon.
The 2016 South Dakota law requires out-of-state online retailers to collect sales tax if they clear $100,000 in sales or 200 separate transactions. The state sued a group of online retailers to force them to collect the state sales taxes, with the aim of overturning the 1992 precedent.
Reporting by Lawrence Hurley; Editing by Will Dunham