Supreme Court Rules States Can Require Sales Tax for Online Purchases

Supreme Court rules that states may require online retailers to collect sales taxes

The 5-4 court opinion finally recognizes the impact of the internet and acknowledges commerce has changed since the court ruled in the 1960s and early 1990s that businesses had to have a physical presence in the state before the state could require them to collect state and local sales taxes.

South Dakota, the subject of Thursday's Supreme Court ruling, passed a law requiring sellers to collect a 4.5 percent sales tax if they had more than $100,000 in annual sales or more than 200 transactions.

"The Internet's prevalence and power have changed the dynamics of the national economy", the court said in its decision in the case, South Dakota v. Wayfair. Large retailers including Apple, Macy's, Target and Walmart, which have brick-and-mortar stores nationwide, already generally collect sales tax from their customers who buy online.

While the ruling opens the door for states to collect taxes from online businesses, there're some significant outstanding questions now that the court has made its decision.

Only five states do not have a state-wide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. But the tax is not applied to third-party sales through the Amazon network.

"You could take it and lower everybody's sales tax rate or everybody's income tax rate, or you could devote it to teacher pay or school construction", said Andy Ellen, president of the North Carolina Retail Merchants Association. He continued to write "the rule produces an incentive to avoid physical presence in multiple states".

The United States Supreme Court just issued a once-in-a-generation ruling for sales tax policy on Thursday.

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Chief Justice John G. Roberts Jr. disagreed in his dissent. Pointing to the company's ads, he wrote: "What Wayfair ignores in its subtle offer to assist in tax evasion is that creating a dream home assumes solvent state and local governments". They often don't have the resources to handle the patchwork of sales taxes across multiple states, according to the retailers, while larger outlets like Amazon don't have that problem.

"Any adjustment to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress", Roberts wrote.

Last November, the federal Government Accountability Office estimated that states could have collected between $8.5 billion and $13.4 billion in sales taxes in 2017 if they had expanded taxing authority.

South Dakota then filed a lawsuit to declare that the new law was valid, a suit that eventually found its way to the Supreme Court.

It's a huge win for vendors with physical storefronts which have long argued that their online counterparts enjoyed an unfair advantage since they didn't have to charge customers local sales tax. The next step will be to see how strictly the courts interpret this ruling, specifically, whether it would allow states to force retailers to also pay excise taxes-also known as OTP taxes-on products.

Chief Justice John Roberts dissented, along with Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan, saying US lawmakers should take up the issue.

Shares of Amazon,, Etsy, Wayfair and other retailers fell after the ruling was announced.


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