Tax and Budget

During the 2018 CSG National Conference in Northern Kentucky - Greater Cincinnati, attendees will have the opportunity to participate in a day-long policy academy on Wednesday, Dec. 5, 8 a.m.- 5 p.m. to consider state options to implement gaming in their states following the recent Murphy decision by the U.S. Supreme Court. 

In September, South Dakota lawmakers met in special session to finalize a policy change that Gov. Dennis Daugaard said was “50 years in the making.” He signed two bills that allow the state to act on its new legal authority to collect taxes from remote and online sales.

Under SB 1, which takes effect on Nov. 1, South Dakota will enforce sales tax collections from online retailers who have at least $100,000 in sales or 200 transactions a year. A second bill approved in the recent special session (SB 2) requires online marketplace providers such as Amazon to attain a sales tax license and remit sales taxes on behalf of sellers that use their services.

The issue in Washington State Department of Licensing v. Cougar Den Inc. is whether the “right to travel” provision of the Yakama Nation Treaty preempts Washington’s tax and permit requirements for importing fuel.

Article III of the Yakama Nation Treaty of 1858 states that “the right of way, with free access from the same to the nearest public highway, is secured to [the Yakama]; as also the right, in common with citizens of the United States, to travel upon all public highways.”

For the fiscal year that began in July, Illinois assumed a revenue boost that it and most states have long been waiting to get on the books — tax collections from remote sales. The state’s assumption is $150 million, based on the nine months that those collections can begin after Illinois’ “economic nexus” law takes effect this fall. (Spread over the course of a full fiscal year, the estimate rises to $200 million.)

In the years ahead, this revenue source is expected to be part of budget estimates and collections in every Midwestern state, thanks to the U.S. Supreme Court’s June 21 decision in South Dakota v. Wayfair(unlike Illinois, most states did not include an increase from online sales tax collections in their FY 2019 estimates).

By a vote of 5-4, the justices overturned a 1992 ruling, Quill Corp. v. North Dakota, that had barred states and local governments from requiring vendors with no physical presence in the state to collect sales taxes. In the years since Quill, online transactions skyrocketed, calls among brick-and-mortar businesses for sales-tax fairness intensified, and multiple attempts at congressional action (always an alternative to a new court decision) failed.

“Hooray for South Dakota,” John Hicks, executive director of the National Association of State Budget Officers, said, noting the state’s passage of legislation in 2016 that became the basis for challenging, and eventually overturning, Quill.

States are increasingly pursuing new streams of revenue to effectively operate and minimize debt. Some states have established or are pursuing a “millionaire’s tax” to minimize budget shortfalls and increase state revenue. The tax is primarily an income tax. California, Connecticut, New Jersey and New York have all established a such a tax. Massachusetts chose to not enact their version of the millionaire’s tax. In Arizona, a ballot measure is up for approval. Every state’s tax structure is different, but it boils down to taxing an individual which makes upward of $250,000 or more.

In South Dakota v. Wayfair the Supreme Court ruled that states and local governments can require vendors with no physical presence in the state to collect sales tax. According to the Court, in a 5-4 decision, “economic and virtual contacts” are enough to create a “substantial nexus” with the state allowing the state to require collection.  

In 1967 in National Bellas Hess  v. Department of Revenue of Illinois, the Supreme Court held that per its Commerce Clause jurisprudence, states and local governments cannot require businesses to collect sales tax unless the business has a physical presence in the state.

Twenty-five years later in Quill v. North Dakota (1992), the Supreme Court reaffirmed the physical presence requirement but admitted that “contemporary Commerce Clause jurisprudence might not dictate the same result” as the Court had reached in Bellas Hess.