SCOTUS to review 1992 Quill decision that states can collect sales tax only if retailer has physical presence in the state; Quill is used in taxing online sales (Greg Stohr/Bloomberg)

SCOTUS to review 1992 Quill decision that states can collect sales tax only if retailer has physical presence in the state; Quill is used in taxing online sales (Greg Stohr/Bloomberg)

The U.S. Supreme Court will consider freeing state and local governments to collect billions of dollars in sales taxes from online retailers, agreeing to revisit a 26-year-old ruling that has made much of the internet a tax-free zone.

Heeding calls from traditional retailers and dozens of states, the justices said they’ll hear South Dakota’s contention that the 1992 ruling is obsolete in the e-commerce era and should be overturned.

State and local governments could have collected up to $13 billion more in 2017 if they’d been allowed to require sales tax payments from online merchants and other remote sellers, according to a report from the Government Accountability Office, Congress’s non-partisan audit and research agency. Other estimates are even higher. All but five states impose sales taxes.

Online retailers Wayfair Inc., Overstock.com Inc. and Newegg Inc. are opposing South Dakota in the court fight. Each collects sales taxes from customers in only some states.

The case will also affect Amazon.com Inc., though the biggest online retailer isn’t directly involved. When selling its own inventory, Amazon charges sales tax in every state that imposes one, but about half of its sales involve goods owned by third-party merchants. For those items, the company says it’s up to the sellers to collect any taxes, and many don’t.

The court probably will hear arguments in April with a ruling by the end of its nine-month term in late June.

‘Physical Presence’

The high court’s 1992 Quill v. North Dakota ruling, which involved a mail-order company, said retailers can be forced to collect taxes only in states where the company has a “physical presence.” The court invoked the so-called dormant commerce clause, a judge-created legal doctrine that bars states from interfering with interstate commerce unless authorized by Congress.

South Dakota passed its law in 2016 with an eye toward overturning the Quill decision. It requires retailers with more than $100,000 in annual sales in the state to pay a 4.5 percent tax on purchases. Soon after enacting the law, the state filed suit and asked the courts to declare the measure constitutional.

“States’ inability to effectively collect sales tax from internet sellers imposes crushing harm on state treasuries and brick-and-mortar retailers alike,” South Dakota said in its Supreme Court appeal.

Wayfair, Overstock and Newegg said the court should reject the appeal and leave it to Congress to set the rules for online taxes.

Expressing Doubts

“If Quill is overruled, the burdens will fall primarily on small and medium-size companies whose access to a national market will

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SCOTUS to review 1992 Quill decision that states can collect sales tax only if retailer has physical presence in the state; Quill is used in taxing online sales (Greg Stohr/Bloomberg)