Today the Supreme Court has decided states are allowed to collect taxes from online retailers. Ten states already have laws requiring out of state sellers to notify buyers of taxes owed and to inform states of unpaid sales taxes. Retailers opposed the laws on the grounds that they had no presence in the states where taxes were being levied.
In a 1992 decision, the Supreme Court ruled that companies with no physical presence in a state didn’t need to collect that state’s sales taxes. But now that online sales account for 10% of shopping, the old rule doesn’t work anymore.
The change in Supreme Court precedent should benefit smaller local businesses by creating a level playing field. Large online retailers are already collecting taxes on most purchases, but some of their smaller affiliates are not, so offers through popular portals may see higher prices at checkout.
USA Today’s Richard Wolf reports:
The decision, which overturns an earlier Supreme Court precedent, will boost state revenues at the expense of consumers and sellers who have avoided sales taxes in the past.
Justice Anthony Kennedy wrote the 5-4 decision, joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch. Chief Justice John Roberts dissented, saying the decision should be left to Congress, and was joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan.
The high court ruled in 1967 and again in 1992 that companies without a physical presence in a state did not have to collect sales taxes. But those rulings applied mostly to mail-order catalog companies. In 1992, Amazon had not yet begun selling books out of Jeff Bezos’ garage.
In its challenge, South Dakota noted that “times have changed,” with online sales growing at four times the rate of total retail sales. As a result, state and local governments in 45 states lose billions of dollars annually in taxes. (Alaska, Delaware, Montana, New Hampshire and Oregon do not have sales taxes.)
In response, online sellers Wayfair, Overstock.com and Newegg, said online retailers could face some 12,000 local tax jurisdictions if the Supreme Court sided with the states. They warned of economic chaos — at least until Congress steps in,
When the court ruled in 1967 and 1992 that Illinois and North Dakota could not squeeze sales taxes from sellers with no presence in those states, there wasn’t nearly as much at stake. Now consumers do nearly 10% of their shopping online, a share that will grow exponentially in the future.
Read more here.
Jeremy Jones, CFA
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