Regulation

South Dakota Sues Wayfair, NewEgg, Overstock And Systemax Over Lost eCommerce Revenue

It's a big litigious party out in South Dakota these days, as the state is suing four eCommerce merchants for their lost sales tax - and different merchants (in a separate suit) are suing right back. According to various reports, the case could well find itself being settled by the United States Supreme Court.

At issue in the case is the South Dakota law that requires online retailers to collect and remit sales tax, even if they have no physical pronounce in South Dakota (the Supreme Court has previously ruled that merchants have no responsibility to collect sales tax in states where they are not physically located.)

The four firms named in the suit are Newegg, Overstock.com, Systemax Inc and Wayfair, all of which are now being compelled by the state in court to hand over sales tax. The bigger aim of the suit, however, is to force a reversal of a 1992 Supreme Court Ruling in Quill Corp. v. North Dakota.

At that time, the high court rules stated that only a company with a physical presence in a state — such as a store, office or warehouse — could be required to collect sales tax from state residents. In fact, the current lawsuit notes in its first paragraph:

“The State acknowledges that a declaration in its favor will require abrogation of the United States Supreme Court’s decision in Quill Corp. v. North Dakota.”

The lawsuit has, unsurprisingly, drawn some responses.

“This lawsuit is a direct attack on established U.S. Supreme Court precedent that retailers around the nation have relied upon for decades. Newegg believes South Dakota’s new law is unconstitutional, and intends to defend itself vigorously," Matt Strathman, associate general counsel at Newegg, said Friday.

Among questions in the suit is why Amazon.com was not listed. Despite the fact that Amazon does in fact collect sales tax in 28 states, South Dakota is not one of them (they have no warehouses or distributions centers there).

To make matters even more complex, the American Catalog Mailers Association and NetChoice — trade associations for catalog and online retailers — are suing South Dakota on the grounds that their new sales tax law violates federal law.

The group's suit claims the South Dakota law violates the U.S. Constitution’s Commerce Clause and guarantees of due process.

“The South Dakota law acknowledges it would require a change in federal constitutional doctrine,” said Steve DelBianco, NetChoice executive director. “The law was designed to fast-track to the state Supreme Court and on to the U.S. Supreme Court this challenge to the Quill doctrine.”

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