South Dakota is asking the nine justices to overturn a 1992 Supreme Court precedent that states can not require retailers to collect state sales taxes on purchases unless the businesses have a "physical presence" in the state.
The court is due to hear a case against retailers that have not been collecting sales tax from customers.
President Donald Trump has argued Amazon doesn't collect sales taxes; even though the company does.
Based on a prevailing Supreme Court law, retailers can be forced to collect taxes only in states where the company has physical presence.
As Dealerscope reported earlier this year, the Supreme Court announced it would review a 25-year-old case that has the potential to dramatically alter ecommerce here in the United States.
South Dakota depends more than most states on sales taxes because it is one of nine that do not have a state income tax. Numerous sales on Amazon's and Walmart's sites are actually done by smaller retailers using those sites as their platform. South Dakota and other state and local governments say they've been cheated out of billions of dollars because of this rule.
"South Dakota's choice to forego its remedy for back taxes in the event that the Court were to overrule [existing law] will not limit the retroactive application of such a ruling with respect to other state and local jurisdictions", said Wayfair's attorneys.
At the time, the court cited state sales tax laws that were too complicated for retailers to know how much to collect unless they had a physical presence in that specific state.
Online retailers said reversing the 1992 precedent is a negative move in terms of e-commerce.
The Trump administration will join the oral argument in favor of online retailers being required to collect sales taxes everywhere. But online-only merchants-especially the large number of independently-owned businesses on sites like Etsy and Ebay-worry that this is more of a cash grab by state and local governments. "These online companies have taken advantage of a bygone decision in order to evade the tax collection duties that their brick and mortar competitors perform every day".