BISMARCK - North Dakota could see millions of dollars in new revenue after the U.S. Supreme Court said Thursday, June 21, states can require out-of-state retailers to collect sales tax, a move state leaders praised as a win for brick-and-mortar stores.
The 5-4 decision overruled a 1992 ruling in a case that originated in North Dakota. In Quill Corp. v. North Dakota, justices said the state couldn't compel the mail-order catalog business to collect sales tax.
But in the years since, states have argued they were missing out on tax revenue as online sales accelerated. North Dakota lawmakers last year passed a bill requiring out-of-state sellers to remit sales tax, treating them as if they have a physical presence in the state.
"It's all about fairness," said state Sen. Dwight Cook, R-Mandan, the bill's primary sponsor and chairman of the Senate Finance and Taxation Committee.
The law, signed by Gov. Doug Burgum more than a year ago, was only to become effective once the U.S. Supreme Court took action. In a statement, Attorney General Wayne Stenehjem said he would meet with Tax Commissioner Ryan Rauschenberger about the effect of Thursday's ruling.
Still, a Legislative Council staffer said the law became effective Thursday, and Rauschenberger said his office would work "to implement this new law change." He said only remote sellers that make at least 200 transactions or $100,000 in sales per year in North Dakota will be required to collect and remit sales tax.
Rauschenberger, a Republican, estimated North Dakota could see as much as $50 million in additional annual revenue. That's a fraction of the state's $4.3 billion two-year general fund budget, but it's welcome news for policymakers who have slashed spending in recent years.
"That's significant in our sales tax base," Rauschenberger said. "That's important that that revenue is collected for education and human services."
Rauschenberger said his office has been preparing for the Supreme Court's decision and will have a specific email account ready to handle questions from online retailers. His opponent in this year's election, Democratic-NPL Chairwoman Kylie Oversen, encouraged lawmakers and the state's executive branch "to get right to work to take advantage of this opportunity to level the playing field for North Dakota businesses."
Democratic Sen. Heidi Heitkamp, who was North Dakota's tax commissioner when the Quill case went before the nation's highest court, called Thursday's decision a "huge victory decades in the making" for brick-and-mortar stores that may now "compete on equal terms" with online retailers.
Mike Rud, president of the North Dakota Retail Association, said he's heard from members of his organization who have lost sales because customers could avoid paying sales tax online. He hopes the court's decision will help stem the tide of store closures that have plagued the shopping sector in recent years.
"There's certainly been a lot of other factors that have influenced it as well," Rud said. "We're not afraid of competition, but it's just got to be level for everybody."
Writing for the majority, Justice Anthony Kennedy said Thursday that the Quill decision created a "tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a state's consumers," which has become "easier and more prevalent as technology has advanced." North Dakota was among 41 states that brought the challenge, with South Dakota leading the way, Stenehjem said.
Chief Justice John Roberts dissented, arguing that e-commerce has grown into a "significant and vibrant part of our national economy against the backdrop of established rules."
"Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress," he wrote.
Cook said the issue has stalled in Congress, prompting states to look to the court. He hesitated to describe the expected new revenue as a windfall but instead saw it as "lost tax revenue that's due to the state but is not collected."