Test case for online sales taxes

internet+tax4Provoked by legislators, online retailers have filed a lawsuit against the state that could have taxing consequences nationwide.

By Liz Farmer | Governing

In a lawsuit that could have taxing consequences nationwide, online retailers are suing South Dakota for trying to collect a sales tax from them. If the suit makes it to the U.S. Supreme Court — as many believe it will — governments would finally get an answer to their long-awaited question of whether they can collect a sales tax from online purchases.

South Dakota lawmakers essentially provoked the suit by passing a law they knew would be challenged by retailers. The law allows the state to collect a sales tax on Internet purchases from remote retailers who have a so-called “economic presence” in the state. Retailers had to start complying with the law by May 1. It challenges a 1992 Supreme Court case that ruled states can only tax retailers who have a physical presence there.

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