Things are getting testy in the Hoosier State when it comes to online sales. Like so many other states, Indiana has been losing revenue as more shoppers go online and sales at brick and mortar stores decline. In an effort to combat the trend, their legislators passed a law this spring allowing them to collect sales tax from those online retailers. This was in response to previous estimates that the state was losing as much as $77M per year back in 2012 and that number has only grown since then.

As expected, however, not all online sellers were willing to go along with the program. Now the state is taking two of them – Overstock and Wayfair Inc. – to court in an effort to force them to collect and remit the tax. (Associated Press)

Indiana has filed a lawsuit in defense of a new law that would allow the state to collect sales tax from out-of-state businesses.

Gov. Eric Holcomb said Monday that he wants the U.S. Supreme Court to overturn its 1992 ruling that said out-of-state retailers don’t have to collect and remit sales tax if they don’t have a physical presence in the state.

Holcomb says the court needs to revisit the ruling because of online sales growth and improvements in software and technology.

The retailers are no doubt counting on the Supreme Court’s 1992 ruling in Quill Corp. v. North Dakota to make their case. But that ruling has grown a bit long in the tooth. First of all, keep in mind that they decided that case a quarter of a century ago. At that time the internet was still a twinkle in most people’s eyes and online shopping was in its infancy. Quill Corp. is a company that sells office supplies and they did all of their sales and advertising through magazines, direct mail and other traditional routes. They managed to sell a huge amount of merchandise in North Dakota, but they were based in Delaware and their warehouses were located in three other states. They had no presence in North Dakota and shipped all their products to their customers there by mail or common carriers.

So the Supremes ruled that North Dakota couldn’t force them to collect and remit a sales tax. But this was still a case of one traditional retailer competing against the traditional retailers in North Dakota and beating them in a competitive race. That’s a far cry from the online sales boom of the 21st century.

From previous cases we’ve already seen indications that at least two of the current Supreme Court justices who you might expect to be opposed – Gorsuch and most importantly Kennedy – could be amenable to overturning that ruling. I would expect Indiana to lose the first round if the court follows precedent, but the Supreme Court may just be in the mood to overturn itself given how rapidly the online sales market is changing.