AVMA urges high court to end tax-free online sales

South Dakota petition seeks to reverse 'physical presence' rule

November 16, 2017 (published)
By Jennifer Fiala

US Supreme Court Building
The U.S. Supreme Court is being asked to reconsider a 25-year-old ruling that exempts online retailers from paying sales taxes.
The U.S. Supreme Court is being asked to reconsider a 25-year-old ruling that exempts online retailers from paying sales taxes.

The American Veterinary Medical Association wants the U.S. Supreme Court to rule that online retailers should collect and remit state sales taxes — just like veterinary practices do.

In a Nov. 2 amicus brief — one of 15 filed this month in support of South Dakota's petition for a writ of certiorari to the Supreme Court — the AVMA joined nine other national trade organizations in the opinion that online stores get an unfair advantage compared with brick-and-mortar retailers.

South Dakota's petition asks the nation's highest court to reconsider its 1992 ruling in Quill Corp. v. North Dakota, which finds that state governments cannot impose the collection of sales tax on retailers without a physical presence in the state.

Whether the U.S. Supreme Court will consider the appeal is unknown.

South Dakota is one of dozens of states that have mounted efforts to circumvent or challenge Quill, a decision that predates the internet boom. Those who support Quill say that it's unrealistic to expect out-of-state companies to navigate the complexities of state and local tax codes. However, the ability of online retailers to skirt state taxes and pass the savings to consumers is eroding the retail industry and state coffers, critics contend.

The ruling could impact the veterinary profession, which has long reviled the tax breaks internet retailers gained under Quill. Americans spent $28.23 billion on pet food and $14.71 billion on medications and pet supplies in 2016, according to the American Pet Products Association. Veterinarians often compete with online retailers, and the tax inequity is hurting their businesses, the AVMA stated in its amicus brief.

"The veterinarian-client-patient relationship, of course, cannot be supplanted by online sales," the AVMA wrote. "But veterinarians still face showrooming with respect to their sales of pet products such as pet food, prescriptions and over-the-counter medicines, and flea and tick products in a more than $66.75 billion annual market for veterinary care and pet-related supplies. Consumers will avail themselves of the extensive training and education that make veterinarians and veterinary technicians extremely knowledgeable about these products, only to then make purchases through an online retailer that offers sales-tax savings."

South Dakota’s governor estimates that as much as $50 million in uncollected state sales-tax revenue will be lost to online merchants this year. In May 2016, the state Legislature passed a law imposing sales tax obligations on internet companies doing more than $100,000 in business with South Dakotans. When online merchants Wayfair, Overstock, Newegg and Systemax failed to comply, South Dakota sued them. (Systemax was dropped from the lawsuit after it started remitting sales tax.)

The case reached the South Dakota Supreme Court, which ruled against the state. In an opinion published Sept. 13, the five-judge panel found South Dakota's new tax law to be in direct conflict with Quill.

"However persuasive the State’s arguments on the merits of revisiting the issue, Quill has not been overruled," the opinion stated. "Quill remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes. We are mindful of the Supreme Court’s directive to follow its precedent when it 'has direct application in a case' and to leave to that Court 'the prerogative of overruling its own decisions.' "

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