Tax Fairness in South Dakota
This summer, the Supreme Court issued a decision to allow states to collect and remit sales tax from online retailers, like Amazon or eBay, which may not have a physical brick-and-mortar store in the state. South Dakota led the effort in the Supreme Court case South Dakota v. Wayfair.
By opening the door for states to collect online sales taxes, South Dakota and local governments can widen the tax base and allow for more tax competition, so that we can foster economic growth by keeping our rates low. This will bring in additional resources to help support local schools, libraries, police units and fire departments, maintain safety nets for individuals who can’t care for themselves and reinvest in our communities – without raising tax rates on South Dakota families. With online sales growing at four times the rate of retail sales in recent years, state and local governments in South Dakota are losing between $48 and $58 million annually. By allowing for this revenue to be collected up front, our brick-and-mortar stores are on a level playing field with online vendors from out of state.
We’ve also taken steps to help simplify the process for businesses. The Department of Revenue has a free online service which makes it simple for vendors to comply with the law. Additionally, in 2005, South Dakota signed the Streamlined Sales and Use Tax Agreement (SST). The agreement, which has been signed by 24 states so far, streamlines and modernizes tax administration at the state level to reduce the burden of compliance. The SST also refers businesses to software that automatically calculates sales tax on transactions. Those who use it are immune from audit liability for sales tax transactions managed by the software. This process for collecting online sales tax, along with the streamlined sales tax provisions developed by SST, has been functioning successfully for several years. In fact, South Dakota has been adapting to SST for more than a decade.
I have been a longtime advocate for granting states the right to require that out-of-state businesses collect state sales taxes on purchases sold in South Dakota. Last year, I sponsored the Marketplace Fairness Act, which would give states the right to collect the sales and use taxes they are owed under current law from out-of-state businesses or online retailers. Small businesses in our state provide good-paying jobs to South Dakotans, pay local property taxes, sponsor community events and make investments in the future of our state. The sales tax loophole that treats out-of-state businesses and online retailers differently than physical businesses in our state creates a disadvantage for brick-and-mortar stores.
The South Dakota State Legislature recently held a special session where lawmakers overwhelmingly approved a plan to allow for collections to start on November 1 of this year. While some have argued that this is just another tax on South Dakotans, it’s actually about tax fairness. Individuals who make purchases online have always been responsible for paying a use tax, but because there was no method or requirement to collect it at the time of the sale—and many people don’t know they have to pay it—the tax was often not paid. That now changes with the passage of the new South Dakota law.
According to the South Dakota Department of Revenue, businesses without a physical presence in South Dakota must now obtain a sales tax license and pay sales tax if their gross sales into South Dakota exceed $100,000 per calendar year or if the business has more than 200 separate transactions into South Dakota per year.
I support the legislature’s decision, and I thank Gov. Dennis Daugaard for his leadership on this important issue. Communities across the state will directly benefit from their local businesses being on a level playing field with online vendors.