BROOKINGS – When, at the call of Gov. Dennis Daugard, the South Dakota Legislature meets in special session Wednesday, one of two issues it will tackle is “the collection and remittance of sales tax by remote sellers.”
Four Brookings men will be following the action with special interest: Arnold “Arnie” Brown; Orville “Orv” Smidt; Tim Reed; and Gary Viken.
Brown and Smidt served as District 7 representatives and senators; Reed, is now a District 7 respresentative after serving several terms as mayor of Brookings; and Gary Viken, former secretary of the South Dakota Department of Revenue and Regulation, moved to Brookings following retirement. Reed will be sitting in on the session.
The genesis of the tax on remote sellers can be traced to the Streamlined Sales Tax Project (SSTP), which began in March 2000 as a nearly nationwide cooperative effort “intended to simplify and make more uniform the sales and use tax collection and administration by retailers and states.”
In March 2016, the South Dakota Legislature passed Senate Bill 106 with the intent of collecting sales tax from out-of-state vendors without a presence in the state selling to in-state residents.
The culmination of the above efforts came on June 21, 2018, when the United States Supreme Court by a 5-4 decision in South Dakota vs. Wayfair Inc. decided that states may charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state. Especially affected would be mail order and Internet sales.
“That’s where all the work that had been done on streamline over the years; it came together with South Dakota vs. Wayfair,” Reed said. And while South Dakota is just about there, there’s still some work to be done.
“South Dakota’s law isn’t in place yet,” Reed explained. “Because it got remanded back to the court system; so it gives the opportunity for Wayfair to come back and sue for something else.”
For Smidt, it’s been a long journey. He was, so to speak, present at the creation of the SSTP. As a Republican, he was elected to the state House in 1996.
And then Sen. Brown got him involved in the issue early on, when Smidt first entered South Dakota state politics via election as one of two District 7 members of the House of Representatives.
“I appointed the committee to go to it and then I just got lost,” said a smiling Brown. “We had Orv Smidt and Mac McCracken and sent them on their merry way.”
“This made sense to me,” said Smidt, who said he wanted to see fairness in sales tax. “We needed to preserve our sales and use tax.”
““I actually put my economics degree to work,” he added, with a smile. “This is what I majored in at South Dakota State (University). Maybe I could pay back a little bit here. It kind of grew from there.”
“The forethought there, it was hard to see how much impact the internet would have on remote sales,” Reed said. “But if we hadn’t started that long ago, we wouldn’t be where we’re at now.”
Some saw a tax increase
Looking back to the 1990s, Viken noted that the support of Congress was needed “to get all the actors talking about this.”
“A lot of the politicians viewed this as a tax increase,” he explained. “So it wasn’t that easy getting support from people that we thought would support it.
“We had strong leadership early on. (Gov. Bill) Janklow really wanted it.” And there was strong bipartisan support.
“Even back to the very beginning, Sen. (Tom) Daschle (D-S.D.) was a supporter of this,” Smidt added. “It was bipartisan from the very beginning. That’s one thing, in South Dakota politics is a little bit different. Most of the time on issues like this that are important they come together.”
What some South Dakotans may not be aware of is that there is a “use tax” on mail order and internet sales that the private consumer could voluntarily pay.
“We used to pay it as employees as part of the revenue,” Viken said. “It was kind of a condition. You couldn’t force anybody to pay; but it was expected that you would file the ‘use tax return,’ because you’re out there preaching the gospel for use tax revenue.”
“This appeared to be unfair to the brick-and-mortar stores,” Smidt said, because of the lost revenue. He did note, however, “When I left Pierre 10 years ago or so, the revenue that the state collected voluntarily was approaching maybe $3 (million) or $4 million. Now I’ve lost track; it could be $10 (million), $15 (million) or $20 million if the curve kept going in the same direction.”
“Changes need to be made now, so that we can start collecting sooner rather than later,” Reed said, looking ahead to the special session. “Being discussed also is how fast do you start forcing businesses outside of the state to start collecting sales tax.”
He noted that the technology is there and the software is out there to put the taxes into affect.
“From my perspective I’m glad that I had the opportunity to serve,” Smidt said. “And that Senator Brown at that time had the influence there in Pierre to get me on this thing. I bought into it early on.”
Contact John Kubal at jkubal@brookingsregister.com.
Register photo: From left, Orville “Orv” Smidt, Gary Viken, Arnold “Arnie” Brown and Tim Reed met at The Brookings Register on Aug. 23 to discuss “the collection and remittance of sales tax by remote sellers,” one of two issues to be considered by the South Dakota Legislature in a special session Wednesday.
