A Kalispell entrepreneur has been drawn into a U.S. Supreme Court case that could shape the future of e-commerce.
Colleen Rast, owner of Great Sky Gifts, is one of five small business owners who were included in a brief submitted by eBay in support of three other online retailers, Wayfair, Overstock and Newegg.
These companies are being sued by the state of South Dakota, which aims to collect sales tax from online retailers. Current case law restricts sales tax collection to firms with a “physical presence” in a jurisdiction.
South Dakota and its allies say that, in the age of e-commerce, this requirement is starving states of considerable revenue. But some internet firms, and the many retailers they support, say that collecting and remitting sales taxes across the country would be bad for business.
“It would cause me to close my doors,” Rast said. “I could not be subject to that financial burden.”
Rast started Great Sky Gifts in 2001. Since then, her business, which focuses on selling apparel, antiques and wares from store and estate closeouts, has grown along with the e-commerce sector.
Over the past 17 years, “I went from selling things out of my closet in my house to a full-fledged business” — one that occupies a 6,000-square-foot Evergreen warehouse, employs three full-time workers and has logged sales in all 50 states and 100 countries, according to Rast.
Almost all of this business is online, conducted through eBay, Amazon, Walmart and Facebook. Companies like these claim a small, but fast-growing, share of retail sales, one that increased from about 1 percent of all sales in 2001 to 9.1 percent at the end of 2017, according to the St. Louis Federal Reserve.
The states’ ability to tax these sales is constrained by a 1992 Supreme Court case, Quill v. North Dakota. The court ruled that sales tax could only be collected from firms with a “physical presence” in that jurisdiction.
Under this requirement, Great Sky’s sales are taxable in the 14 states where Rast stores merchandise in Amazon warehouses. She explained that this amounts to a “physical presence.”
But lawmakers in South Dakota, which lacks a state income tax and thus relies heavily on its sales tax, sought more revenue from e-commerce. In 2016, the state passed a law requiring remote retailers whose sales in the state met certain thresholds to collect and remit sales tax.
The Argus Leader reported that while Amazon and many other e-commerce companies agreed to the plan, Wayfair, Overstock and Newegg did not. Litigation ensued, and the case has now reached the Supreme Court.
South Dakota holds that the “outdated physical-presence rule now causes outsized harms to state treasuries and fundamental unfairness among retailers.”
But with thousands of taxing jurisdictions nationwide, Rast and many other digital merchants say the task of remitting taxes to all of them could be ruinous.
If the Quill ruling is overturned and e-commerce becomes subject to sales tax throughout the country, she predicted that “I would have to start collecting sales tax from upwards of 12,000 different jurisdictions across the United States, and that is a huge compliance burden,” she said. “It’s an administrative nightmare, a financial burden and it’s something I could not do.”
In recent years, Rast has grown active in eBay’s government relations, becoming well-versed in South Dakota’s proposal and its implications. She’s heard similar warnings from other small business owners.
When eBay decided to enter the case by filing one of several amicus briefs, it sought Rast’s input to bolster its argument against South Dakota. “They asked for a representative from each of the states who happened to be eBay sellers to sign on for that state, and they asked me to sign on for Montana,” she said, calling it “a great honor to be asked.”
In its brief, eBay featured her business, along with a Georgia nonprofit, a California electronics recycler, an Alabama tire and appliance store and a South Carolina boat recycler. It described them as “typical of small independent businesses that use the eBay platform... [who] absent the Quill rule therefore would be required to comply with tax-collection obligations all across the Nation.”
The Supreme Court justices will assess these and other aspects of the case in oral arguments Tuesday, and probably issue a ruling by the end of its term in June.
With the taxability of a $450 billion industry at issue, state policy-makers are watching closely.
Max Behlke, director of budget and tax at the National Conference of State Legislatures, has called South Dakota v. Wayfair the “tax case of the millennium.”
And while Montana lacks a sales tax, the decision could affect the future of its revenue options. Last November, Rep. David Fern, D-Whitefish, identified e-commerce as one of the places he thought lawmakers would have to look for funds moving forward.
Rast acknowledges states’ needs for revenue, but noted that remote sellers don’t reap the benefits or participate in the politics of states where they pay sales taxes remotely. And with massive tax calculations difficult for small-scale operations like hers, “I just believe that there has to be a small business exemption.”
Her involvement in the case, she explained, stems from a concern for the small-scale enterprises that fill the digital marketplace.
“I’m just trying to be a voice for all small businesses,” she said.
Reporter Patrick Reilly can be reached at firstname.lastname@example.org, or at 758-4407.