States Can Now Require Online Retailers to Collect Sales Taxes

e-commerce tax


In a decision made by the Supreme Court, states can now require online retailers to collect sales taxes. The 5-4 decision, which overturns a precedent already established by Supreme Court, is expected to help boost state revenues at the expense of e-commerce sellers and consumers.

The previous rulings were had resulted in companies not collecting sales taxes on all online purchases. In the past, if a business was shipping their goods to a state where they have no physical appearance, they didn’t have to collect state sales tax. Consumers were to pay the state tax themselves if they weren’t charged, but the majority of people didn’t.

The decision was written by Justice Anthony Kennedy, who said that the prior precedents represent “a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a state’s consumers.”

Joined by three other Justices, Chief Justice John Roberts disagreed with the decision, stating that the decision should be made by the Congress. As part of his dissent, Roberts stated the decision could take the value away of E-commerce’s “significant and vibrant part of our national economy.”

Many businesses have complained for a while now that they are at a disadvantage having to charge sales tax while the online competitors do not. The states have also said that they are missing out on billions of revenue dollars due to the Supreme Court ruling made in 1992. There have been more than 40 states and the Trump Administration asking to have the 1992 decision overturned. They have said that a case involving mail order catalogs does not pertain to e-commerce.

It was in 2015 when Justice Anothony Kennedy called for a challenge to the decision.

“It is unwise to delay any longer a reconsideration of the court’s holding in Quill,” he wrote. “A case questionable even when decided, Quill now harms states to a degree far greater than could have been anticipated earlier.”

In response to Kennedy, South Dakota started the process enacted a law that required all merchants making more than $100,000 annually or 200 transactions to collect 4.5 percent sales tax. Three online retailers were sued for violating the law, including Overstock, Newegg and Wayfair.

In an audit by the Government Accountability Office, states had missed out on $13.7 billion in tax revenue in 2017.

Retailers argued that overturning the previous decisions would let states go beyond the legislation passed by South Dakota and require collection of a single sale in a state or forcing companies to comply retroactively. Retailers also argued that Congress could implement national instead of the companies having to deal with requirements that they state are 12,000 taxing jurisdictions nationwide.

Ultimately, the decision was made in the South Dakota v Wayfair case to allow states to collect taxes on online purchase. Since the decision was made Thursday morning, the stock of online retailers Amazon, Wayfair and Overstock dropped quickly.