PIERRE — Lawmakers put in place the mechanics for collecting sales taxes on Internet purchases at a special session on Wednesday.
The special session was the result of the South Dakota vs. Wayfair decision by the U.S. Supreme Court which ruled that remote sellers do not have to have a physical presence in a state to be required to pay the state’s sales tax.
Lawmakers gathered to consider three bills, two of which dealt with Internet sales tax collection.
SB1 requires remote sellers to collect and pay sales taxes to South Dakota starting on Nov. 1. The bill also says Wayfair litigants are exempt as they are still in litigation with South Dakota.
SB2 requires marketplace sellers, sites that host other merchants who sell goods, to collect and pay South Dakota sales tax. Marketplace sellers include sites like Amazon, Etsy and eBay.
The provisions of SB1 go into effect on Nov. 1. SB2’s provisions go into effect on March 1, 2019.
Both chambers also passed HB1001 which cleans up the ambiguity that exists between the state constitution, state law and legislative tradition surrounding the inauguration of the governor.
Addressing the joint session, Gov. Dennis Daugaard said that the effort to find a way to collect sales taxes from remote sellers has gone on for more than 20 years, all the way back to when “we all thought of Amazon as a river.”
South Dakota’s successful Supreme Court case got its start in 2016 with the passage of SB106, a bill designed to land the state in court.
“We wanted to start a lawsuit that would get us to the Supreme Court so we could overturn Quill,” Daugaard said.
The lawsuit Quill vs. North Dakota set the standard that states could only collect sales taxes on Internet sales from those companies which had a physical presence in their state.
After being addressed by the governor, lawmakers took testimony on the sales tax bills during a joint meeting.
Speaking in favor of SB1, Revenue Secretary Andy Gerlach said that since the Wayfair decision, 22 of the 45 states that collect sales taxes have implemented laws to ease the collection of sales taxes on Internet sales.
Gerlach noted that the bill’s emergency clause would allow it to go into effect immediately, allowing the state to collect sales tax on holiday sales.
Also speaking in favor of the bill were representatives of the South Dakota Chamber of Commerce and Industry and the South Dakota Retailers Association.
Testifying against the measure was Tonchi Weaver of Rapid City who said the law could be used to “target” people.
“It would not be the first time that the law was used as a bludgeon,” Weaver said.
Sen. Stace Nelson, R-Fulton, said that increased sales tax collection was a means for expanding government. He also asserted that charging a tax that had not been collected in the past amounted to a new tax.
“It’s a new tax,” Nelson said. “It’s going to hit their pocketbooks. It’s going to hit hard.”
Speaking in favor of SB2, Gerlach said that marketplaces are a growing part of Internet commerce.
“This industry is growing with no signs of slowing down,” Gerlach said.
Of the 75 largest Internet marketplaces in the world, Gerlach said that 42 of them are located in the United States and sold $473 billion worth of goods in 2017.
Rep. Susan Wismer, D-Britton, said that legislators often talk about citizens’ rights but rarely say much about citizens’ responsibilities. She said the taxes are due to the state of South Dakota and don’t represent a new tax.
Asked how the new law applies to Facebook-based rummage sale sites, Gerlach said that those sites, like Craig’s List, facilitate sales but don’t handle the money. Consequently, the new law would not apply to them.
Legislators were stymied when they asked for estimates about how much new revenue was headed for state government.
Gerlach’s best example was that 303 retailers have volunteered to collect South Dakota sales tax and that the state has received $3.3 million from them. He said another 800 businesses will be sent letters explaining South Dakota’s new sales tax regulations. He also noted that $50 million was used in the Supreme Court lawsuit as an example of the tax revenue South Dakota was not allowed to collect.
“I recognize that there’s a fair amount of frustration,” said Speaker of the House Mark Mickelson, R-Sioux Falls, addressing the lack of sales tax projections.
SB1 and SB2 were endorsed by the Senate on identical 30-3 votes with three members excused. SB1 passed in the House on a vote of 62-4. SB2 passed on a vote of 60-6. Four members of the House were excused.