South Carolina could see a windfall of between $132 million and $193 million, depending on what the U.S. Supreme Court rules in a new case about collecting sales taxes from online sales.
On April 17, the court will hear South Dakota v. Wayfair, a case where South Dakota is seeking legal authority to require internet-based companies to collect taxes on sales made to customers in its state.
The General Accountability Office issued a November 2017 report that looked at how much revenue different states would see if they could collect sales taxes from all remote sellers.
Nationally, the impact would range from $8 billion to about $13 billion, the report said. That's about 2 percent to 4 percent of all 2016 state and local government general sales and gross receipts tax revenues.
South Carolina is among 45 states and the District of Columbia that have sales taxes and it's also among 37 states that have local sales taxes, too.
The Supreme Court ruled twice — in 1967 and 1992 — that states can’t require a company to collect and remit the tax unless it has a “physical presence” there. The South Dakota case challenges that precedent.
The case comes as online sales continue to boom while conventional brick and mortar retailers fade. The stakes are huge: On average, states get about one-third of their total tax income from sales taxes, according to the GAO report.
If South Carolina were to receive between $132 million and $193 million more tax revenue from online sales, that would mark an increase of about 2 percent in its $7.9 million general fund revenues.
The State and Local Legal Center filed a brief with the Supreme Court urging it to rule for South Dakota.
The center, a Washington-based group whose members include the seven main national groups representing state and local governments, has called the lawsuit one of the most important in its 35 years of existence.
Technically, customers buying from remote sellers still owe sales tax, but they rarely pay, the center said. Congress has the ability to make it easier for states to tax online sales — and that's partly why the recent GAO report was requested — but it has not acted so far.
U.S. Sen. Lindsey Graham has been a big supporter of leveling the playing field, but others in the state's congressional delegation haven't been, said Reba Campbell of the S.C. Municipal Association, who said this sales tax issue has been one of the municipalities' most pressing issues on the federal level.
City and town officials are less concerned about losing out on the revenue than they have been about how the current tax disparity often hurts brick-and-mortar businesses along their shopping streets.
“It’s a huge issue for small businesses that are losing out,” Campbell said.
Justice Anthony Kennedy suggested in 2015 the time is right for the court to re-examine the 1992 ruling, and South Dakota was the first state to produce a law — and a related lawsuit — that provides such a chance.
Not everyone wants to see a change. S.C. Attorney General Alan Wilson did not join with those filing briefs to support South Dakota's effort, his spokesman Robert Kittle said Friday.
"The office of the Attorney General had concerns about overturning U.S. Supreme Court precedent that would allow state and local governments to increase the tax burden on our citizens," Kittle said.
New Hampshire, which is one of five states with no sales tax, is urging the court not to require its companies to become tax collectors for other states.
Grover Norquist, president of Americans for Tax Reform, has said the issue should be settled in Congress, not in the South Dakota Legislature and the courts.
"You don’t want states to reach into each other’s borders and tax without recourse at the ballot box,” he said in an earlier interview.
In 2016, South Carolina ended a sales-tax break given to the mammoth online retailer Amazon in 2011.
For years, the Seattle-based company fought collecting sales taxes from its customers but that was proving more challenging as it sought to open physical distribution centers in new states.
South Carolina was among 10 states that gave Amazon a temporary tax reprieve in exchange for jobs and investment, such as new distribution centers in Lexington and Spartanburg counties.
On Jan. 1, 2016, South Carolina joined 26 states where Amazon collects the tax.