If the U.S. Supreme Court decides to let states collect sales tax on out-of-state retailers, it would harm small business to the benefit of big companies, like Amazon, anti-tax crusader Grover Norquist told CNBC on Tuesday.
The justices heard arguments on the issue Tuesday. South Dakota is asking the court to overturn a 1992 Supreme Court precedent that states can't require retailers to collect sales taxes unless the businesses have a physical presence in the state.
Amazon "would be the big winners" if that happened because smaller business would be forced to pay larger companies, like Amazon, to use their software to collect sales taxes for them, said Norquist, president and founder of Americans for Tax Reform.
They'd wind up doing that because there are about 10,000 taxing jurisdictions, meaning about 10,000 different rules to follow, he said on "Power Lunch." So many small businesses would have to go on someone else's website that has the appropriate software.
"Only really big characters in the market would be able to manage this and smaller people would have to pay for that ability," he said.
South Dakota is appealing a lower court decision that favored Wayfair, Overstock.com and Newegg. The appeal is being supported by President Donald Trump's administration.
Norquist said what the state wants is akin to taxation without representation.
"Politicians just love the idea. They're just salivating at the idea that they can tax businesses in other states that can't vote against them. The workers that they hurt will never be able to vote against them," he said.
Norquist thinks the real motive is the ability to go after corporate income tax.
If the nation's high court sides with South Dakota, nothing stops states "from exporting corporate income taxes across state lines," he contended.
"The fact that you're not in their state won't matter anymore because the Supreme Court would have said, 'we've thrown away the importance of physical presence to whether you can be taxed or not.'"
South Dakota depends more than most states on sales taxes because it is one of nine that do not have a state income tax. South Dakota projects its revenue losses because of online sales that do not collect state taxes at around $50 million annually.
The state is supported by industry groups representing major retailers that have brick-and-mortar stores that already collect state sales taxes.
Norquist argues the best way to protect brick-and-mortar shops is to reduce sales tax in the states, "not taxing somebody else."
— Reuters contributed to this report.