JCK's Bates Gives Background to Blue Nile/South Dakota Shipping Decision

Finance and Trade
20/05/2016 06:36

Online diamond jewelry seller Blue Nile announced earlier this month that it would temporarily no longer ship to South Dakota in response to a new state law that says remote sellers must collect sales tax from local residents, even if, and this where the law differs from similar state laws, they have no physical presence in the state (known as nexus). The rule applies only to companies that sell more than $100,000 or process more than 200 in-state transactions a year.

As long ago as 1992, the U.S. Supreme Court ruled that states do not have the right to collect sales tax from remote sellers if they do not have an in-state presence. However it also allowed for Congress to supersede the decision. But Congress has been able to agree on little in recent years, and although the Senate passed the Marketplace Fairness Act in 2013, it has been blocked in the House. Last year, Justice Anthony Kennedy wrote in a decision that Quill is “now inflicting extreme harm and unfairness on the States,” JCK's Rob Bates explains. With the growth in e-commerce, he wrote that the “legal system should find an appropriate case to reexamine [the 1992 Supreme Court decision].”  South Dakota’s law was specifically designed to be that case.

"Blue Nile’s decision is somewhat surprising, given that its CEO has said he expects an online sales tax may pass. It also clearly believes that its future includes some form of brick-and-mortar presence; one of its new webrooms is in Virginia, which means the company will now accept nexus—and collect sales tax—there. With online sales continually growing and regularly outpacing brick-and-mortar sales, everyone—even people from direct marketing association trade groups—agrees something will happen eventually. If South Dakota has its way, that day may come sooner than we think."