The 5-4 decision overturned an earlier court ruling that states have fought for years. | Chip Somodevilla/Getty Images Supreme Court hands states a victory in tax case that may cost consumers The decision means states are free to collect billions of dollars in extra revenue from online retailers.

The Supreme Court on Thursday ruled that states can force out-of-state retailers to collect sales tax on purchases by their residents, sweeping away decades of precedent.

The decision means states are free to collect billions of dollars in extra revenue from online retailers, at a time when many state officials complain it's difficult to balance their budgets, and that many consumers may pay more for online purchases.

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Justice Anthony Kennedy, one of the driving forces behind getting the case to the court, wrote in his opinion that the previous precedent — that states could only mandate sales tax collection from companies with a physical presence in their borders — was "unsound and incorrect."

The court's 5-4 split on South Dakota v. Wayfair didn't break along traditional ideological lines. Kennedy was joined by fellow conservative-leaning Justices Samuel Alito, Neil Gorsuch and Clarence Thomas, along with usually liberal Justice Ruth Bader Ginsburg.

Chief Justice John Roberts, normally a conservative, was joined in a dissent by liberal-leaning Justices Stephen Breyer, Elena Kagan and Sonia Sotomayor that asserted Congress should take the lead on the online sales tax issue.

In his opinion, Kennedy said the rise of the internet had made the error of the court's previous decisions "all the more egregious and harmful." At the time of those rulings, the Supreme Court "did not have before it the present realities of the interstate marketplace, where the Internet's prevalence and power have changed the dynamics of the national economy."

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The high court's ruling also is a boon to President Donald Trump, who has long railed against the ability of internet-based sellers to undercut retail stores. Much of Trump's ire on the subject has been aimed at Amazon and its founder Jeff Bezos, who also owns The Washington Post.

"Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!" Trump tweeted in March.

Amazon for years took advantage of its ability to dodge collecting state and local sales taxes, but more recently has joined big-box stores and their advocates in pushing for legislation to give states more sales tax power. The company now collects in every state with a statewide sales tax, as it has built numerous distribution centers close to urban hubs.

But some sales carried out on the Amazon platform for other dealers still escape sales tax.

The Supreme Court had most recently upheld its precedent in 1992's Quill decision, while inviting Congress to give states more latitude on sales tax if it wished.

Two justices, Kennedy and Thomas, effectively flip-flopped Thursday from the stances they took in the Quill case 26 years ago. Thomas penned a concurring opinion saying he “should have joined” the dissent in Quill in 1992. “It is never too late to ‘surrende[r] former views to a better considered position,’” Thomas wrote.

In his dissent, Roberts also agreed that a 51-year-old Supreme Court ruling exempting out-of-state mail-order purchases was “wrongly decided,” but said it should be up to Congress and not the courts to make such a potentially far-reaching decision.

“Any alteration 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. “The Court should not act on this important question of current economic policy, solely to expiate a mistake it made over 50 years ago. … By suddenly changing the ground rules, the court may have waylaid Congress’s consideration of the issue.”

But lawmakers have been mired in gridlock for years over that issue, with Republicans particularly divided. Some GOP lawmakers backing the states' position believe that giving states more sales tax power merely allows them to collect taxes that are generally owed anyway and gives them more freedom with their own budgets.

Others see it as a de facto tax increase that would give states too much power to regulate commerce beyond their own borders. The Senate did pass online sales tax legislation in 2013, but the measure was never picked up in the House, where Judiciary Chairman Bob Goodlatte (R-Va.) — whose panel has jurisdiction on the issue — opposes allowing states to collect outside their borders.

Because of that gridlock, major retail industry groups and state governments once more looked to the courts for assistance.

Kennedy first signaled that Quill might get another hearing at the Supreme Court, when he wrote in a related 2015 opinion that the precedent might have outlived its usefulness.

South Dakota, whose tax system is heavily reliant on sales taxes, then quickly passed a law that required out-of-state companies to collect taxes if they hit certain sales thresholds in the state. Wayfair, Newegg and Overstock, three companies that would have been affected by that law, were defendants in the case.

The court’s action Thursday paves the way for states to start seeking methods to collect more sales tax, but it may be far from the last word from Washington on the matter.

Both supporters and critics of the court’s decision called on Congress to follow up on the ruling with legislation that offers clear rules for how states can use their new taxing power.

“Remote retailers — many of whom are small businesses — may soon be forced to keep track of the thousands of taxing jurisdictions across the country, many with their own rates, bases, rules and regulations. Congress remains the only solution to this threat,” said Joel Griffith of the conservative-leaning American Legislative Exchange Council, who maintained that the ruling “marks a departure from a constitutional understanding of federalism.”

Along those lines, critics of the decision also said they were worried that states would move aggressively to start taxing businesses that reside outside their borders. But Kennedy’s decision also praised the South Dakota law — which, for instance, does not allow the state to retroactively collect sales taxes — for offering a “reasonable degree of protection” to companies, and some retail advocates suggested that states would take a moderate approach with their new powers.

“Most will work quickly and judiciously to reclaim their authority and create a level playing field for all retailers selling to customers in their states,” said Deborah White of the Retail Industry Leaders Association, which applauded Thursday's ruling.

Toby Eckert contributed to this report.

</s>The Supreme Court ruled Thursday that states can compel retailers to collect sales taxes even if they don’t have a physical presence in the state.

The 5-4 decision overturns a 1992 Supreme Court precedent that effectively barred states from collecting such taxes, and could leave consumers paying more for online purchases as cash-strapped states tap a rich vein of new revenue.

In making their decision, justices ruled that South Dakota can collect sales taxes from online retailers like Wayfair, which brought the suit. In doing so, the court reversed a 1992 ruling that allowed states to levy taxes only on those businesses with a brick-and-mortar location within the state. The court said that law effectively incentivized businesses to “avoid physical presence” in states and led to “a judicially created tax shelter” Ultimately, the justices said the current laws are outdated.

“The Internet’s prevalence and power have changed the dynamics of the national economy,” Justice Anthony Kennedy wrote in the majority opinion. “The expansion of e-commerce has also increased the revenue shortfall faced by States seeking to collect their sales and use taxes.”

South Dakota’s law applies only to those businesses with more than $100,000 in sales in a state.

Sucharita Kodali, a retail analyst with Forrester, called the ruling “bad news” for thousands of major online retailers. “Now those companies have to assess taxes on customers or they get sued. For products like furniture, jewelry, electronics, people will likely start to shop local again,” she said.

Shares of Amazon, Wayfair, Etsy and eBay dipped in early trading immediately after the ruling.

State and local governments had grown increasingly agitated as sales from brick and mortar retailers gave way to online retail, which now comprises approximately 9.5% of the dollar value of total purchases.

Related: Supreme Court debates whether to allow states to tax all online sales

Prohibitions against collecting sales taxes from online retailers cost states as much as $13.4 billion last year, according to the General Accountability Office. Although the IRS requires consumers to tally their purchases and pay all applicable taxes with their regular filing, few people do.

Many large online retailers, including Amazon and Wal-Mart, already collect sales taxes because they have a large enough physical presence in each state to qualify as taxable by states. But plenty of smaller players, such as home furnishings websites Overstock.com and Wayfair, don’t have widespread enough operations to be subject to state taxing authority, giving them a substantial price advantage over traditional brick and mortar businesses.</s>WASHINGTON -- A closely divided Supreme Court upended the nation's Internet marketplace Thursday, ruling that states can collect sales taxes from most online retailers.

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.

Kennedy said the court's 25- and 50-year-old precedents requiring sales tax collection only from physically present businesses 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."

Faced with a South Dakota law that exempted online retailers with less than $100,000 in annual sales or 200 annual transactions in the state, the justices nevertheless opened the door to states that may want to collect sales taxes from smaller sellers. Kennedy said Congress could step in to set limits.

"If some small businesses with only de minimus contacts seek relief from collection systems thought to be a burden, those entities may still do so under other theories," Kennedy said. But the potential for problems, he said, "cannot justify retaining this artificial, anachronistic rule that deprives states of vast revenues from major businesses."

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.

In his dissent, Roberts warned that the decision could detract from E-commerce's "significant and vibrant part of our national economy."

"This court should not act on this important question of current economic policy, solely to expiate a mistake it made over 50 years ago," Roberts said.

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.

Congress protected those Internet sellers in 1998 legislation that has since been made permanent. Then in 2000, a national commission urged states to simplify their tax systems as a precursor to taxing remote sellers. Twenty-four states eventually did so, but the nation's largest states, with 70% of the U.S. population, did not.

Stymied by the Supreme Court rulings and the Internet Tax Freedom Act, states have done their best to collect taxes on residents' out-of-state purchases. That has created a patchwork of laws. More than 20 states define a seller's physical presence as including any affiliated website. Ten states require out-of-state sellers to notify buyers and inform states of the unpaid sales taxes.

The Supreme Court in 2015 unanimously upheld Colorado's law requiring those notices and reports.

Most of the top 20 online sellers already collect taxes in nearly all states, either because they have added local showrooms or warehouses, or because of state laws. The top 100 retail sellers remit about 90% of the taxes owed.

But many smaller online retailers are women, minorities, veterans and people with disabilities who have taken advantage of the protections granted by the Supreme Court and Congress over the years.

The typical retailer on eBay sells between $10,000 and $500,000 annually, with customers in more than 300 tax jurisdictions. Etsy's sellers are even smaller: Nearly eight in 10 are sole proprietors, nearly nine in 10 are women, and nearly all are based in homes. Average annual sales: $1,710.</s>
• The Supreme Court ruled Thursday that states may require online retailers to collect sales taxes.
• Shares of Amazon, Overstock.com, Etsy, Wayfair, and other retailers fell after the ruling was announced.
• Only five states do not collect a statewide sales tax.

Shares of Amazon and other online retailers fell Thursday morning after the Supreme Court ruled that states could require tax collection on digital sales.

Thursday's decision in the case of South Dakota v. Wayfair overturns a 1992 ruling that said retailers could be required to collect state sales taxes only in sales in states where the retailers had a physical presence.

"The Internet revolution has made Quill's original error all the more egregious and harmful," Justice Anthony Kennedy said in delivering the opinion. "Quill Court did not have before it the present realities of the interstate marketplace, where the Internet's prevalence and power have changed the dynamics of the national economy. The expansion of e-commerce has also increased the revenue shortfall faced by States seeking to collect their sales and use taxes, leading the South Dakota Legislature to declare an emergency."

Only five states do not have a state-wide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Alaska and Montana allow individual cities to collect local sales taxes, according to the Tax Foundation.

The 5-4 ruling is widely seen as a victory for brick-and-mortar stores, which previously said online retailers' ability to avoid sales-tax collection gave them an advantage. States also argued against the previous statute, saying it reduced their potential revenue from sales taxes as more consumers turned to digital shopping options.

President Donald Trump has also criticized Amazon, whose founder, Jeff Bezos, also owns The Washington Post, saying the online retailer does not collect any sales tax. Even before the Supreme Court's ruling, however, Amazon had said it was moving to collect state sales taxes on its inventory sold in all 45 states with statewide taxes.</s>The Supreme Court ruled Thursday that states can compel retailers to collect sales taxes even if they don’t have a physical presence in the state.

The ruling overturned a 1992 Supreme Court precedent and potentially paves the way for consumers to pay more for their online purchases.

Shares of Amazon, Wayfair, Etsy and eBay all dipped in early trading Thursday immediately following the ruling.

State and local governments had grown increasingly agitated as sales from brick and mortar retailers gave way to online retail, which now comprises approximately 9.5% of the dollar value of total purchases.

Last year, states could have collected as much as $13.4 billion in additional online sales taxes, according to the General Accountability Office. Although buyers are technically supposed to add up their purchases and pay all the applicable taxes along with their regular filing, few do.

Many of the largest online retailers, such as Amazon, already pay sales taxes because they have enough of a physical presence in most states through their network of warehouses and distribution facilities to qualify as taxable by states.

But plenty of smaller players, such as home furnishings websites Overstock.com and Wayfair, don’t have widespread enough operations to be subject to state taxing authority, giving them a substantial price advantage over traditional brick and mortar businesses.</s>You will soon likely be paying more in taxes for online purchases.

The US Supreme Court on Thursday gave states the ability to require online and out-of-state retailers to collect and send them state sales taxes. The decision overturns a 1992 ruling that prevented the practice.

Brick-and-mortar retailers in states are required to collect taxes on a state's behalf. Until now, online retailers with no physical presence in a state were not. Instead, consumers were responsible for send states the necessary taxes -- something that most people never do.

That's resulted in states losing millions of dollars in sales taxes every year and online retailers gaining a decades-long tax advantage against their brick-and-mortar peers. Those issues have only exacerbated over the years, as more consumers spend their money online, resulting in a long list of traditional retailer bankruptcies and store closures.

In response to the ruling, the stocks of several internet retailers, including Amazon, eBay and Wayfair, all dropped.

After states and traditional retailers have grumbled about this situation for years, South Dakota finally decided to do something to change it. The state in 2016 enacted a law requiring out-of-state sellers to collect and send it sales taxes, but only if they deliver more than $100,000 of goods or services into the state or make 200 or more transactions. That minimum requirement was likely meant to avoid an undue burden on small-time mom-and-pop sellers on eBay, Amazon or other online marketplaces.

South Dakota then filed a lawsuit to declare the new law valid, a suit that eventually found its way to the Supreme Court. The state argued that it was losing between $48 million and $58 million a year due to the current tax situation.

The court decided to overturn a 1992 decision that a physical presence was necessary to require retailers to collect and send sales taxes to a state. That will open the door to more states passing laws similar to South Dakota's.

The National Retail Federation, a trade group that includes many of the largest brick-and-mortar US retailers, called Thursday's decision "a major victory" that was two decades in the making.

"This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both," Matthew Shay, federation president and CEO, said in a statement.

Moody's analyst Charlie O'Shea said Amazon, the world's largest retailer, won't be directly affected by the new decision, since it's become so big that it already has a physical presence in every state that has sales taxes. However, he added, smaller retailers that sell their goods through Amazon could face a significant impact, since a chunk of their sales haven't been taxed.

Whether higher taxes on those goods will hurt Amazon's overall revenue "remains to be seen," though O'Shea noted that Amazon has thrived as a business despite needing to collect more in sales tax as its expanded to new states.

Blockchain Decoded: CNET looks at the tech powering bitcoin -- and soon, too, a myriad of services that will change your life.

Follow the Money: This is how digital cash is changing the way we save, shop and work.</s>In a decision that will impact online shopping for all Americans, the U.S. Supreme Court on Thursday upheld a South Dakota law which required online companies to collect and remit state sales taxes, even if that company did not have a ‘physical presence’ in the state.

“Each year, the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States,” wrote Justice Anthony Kennedy, in a 5-4 decision.

“These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause,” the majority wrote.

The ruling overturned previous Supreme Court precedents from the 1992 Quill case, which had theoretically made internet sales a tax-free zone in certain situations; over the years, that changed, but this ruling will now require online sellers to collect sales taxes for all states.

It was quickly denounced by some in the Congress.

“This decision creates mountains of red tape for small businesses in New Hampshire and across the country, hurting their ability to grow and create jobs by selling on the internet,” said Sen. Jeanne Shaheen (D-NH).

But others on Capitol Hill saw it much differently.

“This ruling clears the way for our retailers to compete on a level playing field with internet giants,” said Sen. Dick Durbin (D-IL).

“I am glad the Court realized the importance of closing this gaping loophole in our tax law,” said Sen. Mike Enzi (R-WY).

The decision allows state and local governments now to press online retailers to collect sales tax revenues – which some experts believe could bring in billions of dollars in additional revenues, which would be collected if the online seller had a ‘physical presence’ – a store – in that state.

Maybe the most interesting part of the ruling was the lineup of Justices, as Justice Ruth Bader Ginsburg joined with Kennedy, and three more conservative Justices to provide the majority, while the Chief Justice sided with the remaining three more liberal Justices.

“This Court ‘does not overturn its precedents lightly,'” Chief Justice John Roberts wrote for the minority, as he said the Court was wrong to change the way states can deal with sales taxes and online sales, arguing the Legislative Branch should take that step.

“Any alteration 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.</s>The Supreme Court ruled Thursday that states can force online retailers to collect taxes from online sales.

The 5-4 ruling overturned an earlier decision in 1992 which limited states from collecting taxes from online retailers who did not have a physical presence in those states.

South Dakota, who brought the challenge to the Supreme Court, passed a law in 2016 that required out-of-state online retailers that make more than $100,000 in sales or 200 transactions annually in that state to pay 4.5 percent tax.

"The physical presence rule has long been criticized as giving out-of-state sellers an advantage. Each year, it becomes further removed from economic reality and results in significant revenue losses to the States," Justice Anthony M. Kennedy wrote in the majority decision.

Retailers like Walmart and Target collect sales tax from customers who buy online since they have a physical store in the state the online purchase is made.

Amazon also collect taxes from online sales if the state the shipment is made to collects sales tax. However, third party sellers who use Amazon to sell their goods were not required to pay sales taxes for their online transactions until now.

After the decision, Amazon shares fell nearly 2 percent.

And eBay, in which sellers frequently make interstate transactions, saw its shares decline as much as 2.4 percent.</s>The Supreme Court decided Thursday that states can require online retailers to collect state sales tax.

In a 5-4 decision, the High Court ruled Wayfair, a Boston-based home goods company, must collect sales taxes for online purchases in South Dakota.

The company has argued it shouldn't have to because it didn't have a physical presence in that state.</s>States have broad authority to force online retailers to collect potentially billions of dollars worth of sales taxes, the U.S. Supreme Court ruled on Thursday, siding with South Dakota in its high-profile fight with e-commerce companies.

WASHINGTON: States have broad authority to force online retailers to collect potentially billions of dollars worth of sales taxes, the U.S. Supreme Court ruled on Thursday, siding with South Dakota in its high-profile fight with e-commerce companies.

The justices, in a 5-4 ruling against Wayfair Inc, Overstock.com Inc and Newegg Inc, overturned a 1992 Supreme Court precedent that had barred states from requiring businesses with no "physical presence" in that state, like out-of-state online retailers, to collect sales taxes.

The court, in a ruling authored by conservative Justice Anthony Kennedy, revived a 2016 South Dakota law that required larger out-of-state e-commerce companies to collect sales tax, a mandate that the online retailers fought in court.

South Dakota was backed by President Donald Trump's administration in the case. The law could yet face legal challenges on other grounds, Kennedy noted.

The ruling is likely to lead other states to try to collect sales tax on purchases from out-of-state online businesses more aggressively. It also likely will lead to many consumers paying more at the online checkout. Forty-five of the 50 states impose sales taxes.

Most states would need to pass legislation before seeking to collect the additional taxes, although some have already enacted laws or regulations similar to South Dakota's.

The ruling opens the door to a new revenue stream to fill state coffers - up to US$13 billion annually, according to a federal report - while imperiling a competitive advantage that e-commerce companies had over brick-and-mortar rivals that already must collect sales tax.

South Dakota has estimated that it could take in up to US$50 million a year in additional revenue with these taxes being collected.

States like South Dakota that depend heavily on sales taxes for their revenue are likely to benefit most, with a predicted maximum revenue increase of around 3 percent, according to a Barclays research note.

The states that are likely to see the biggest percentage increase in revenue are Louisiana, Tennessee, South Dakota, Oklahoma and Alabama, according to the Barclays research.
The United States Supreme Court allows states to collect sales taxes from online retailers that do not have a "physical presence" in that state.