State governments may require online retailers to collect sales taxes even in states where the retailers have no physical presence, the US Supreme Court ruled in a decision issued today. The 5-4 ruling could clear the way for more states to require collection of sales taxes on products ordered online from out-of-state retailers. The case, South Dakota v. Wayfair, Inc., Et Al., involved a South Dakota state law "requiring out-of-state sellers to collect and remit sales tax 'as if the seller had a physical presence in the State,'" the decision noted. Online retailers argued that the law was unconstitutional, and the State Supreme Court agreed, but the US Supreme Court overturned the state court ruling. South Dakota expects to collect another $48 million to $58 million in taxes a year because of this ruling. The South Dakota Supreme Court based its ruling on a 1992 US Supreme Court case, Quill Corp. v. North Dakota, which held that out-of-state companies don't have to collect state sales taxes in states where they don't have a physical presence. Today's Supreme Court ruling said the Quill decision was flawed: Quill imposes the sort of arbitrary, formalistic distinction that the Court's modern Commerce Clause precedents disavow in favor of "a sensitive, case-by-case analysis of purposes and effects." It treats economically identical actors differently for arbitrary reasons. For example, a business that maintains a few items of inventory in a small warehouse in a State is required to collect and remit a tax on all of its sales in the State, while a seller with a pervasive Internet presence cannot be subject to the same tax for the sales of the same items. "Forty-one States, two Territories, and the District of Columbia have asked the Court to reject Quill's test," today's ruling, written by Justice Anthony Kennedy, also said. "Helping respondents' customers evade a lawful tax unfairly shifts an increased share of the taxes to those consumers who buy from competitors with a physical presence in the State. It is essential to public confidence in the tax system that the Court avoid creating inequitable exceptions." The rise of the Internet "has made Quill's original error all the more egregious and harmful," the court said, noting that Congress should not have "to address a false constitutional premise of this Court's own creation." Advertisement The majority decision came from Justices Kennedy, Ruth Bader Ginsburg, Samuel Alito, Neil Gorsuch, and Clarence Thomas. Dissenting justices were John Roberts, Stephen Breyer, Sonia Sotomayor, and Elena Kagan. Shares of Amazon, Etsy, Wayfair, and other online retailers fell today after the ruling. "Traditional retailers like Target, Walmart, and Best Buy saw shares rise about one percent after the decision," CNBC wrote. Amazon collects sales tax in all states that impose such taxes, at least for purchases from Amazon and its affiliates. Amazon generally doesn't collect taxes on behalf of third-party sellers that sell goods on Amazon, but it does collect taxes on third-party sales in Pennsylvania and Washington because of new laws in those states. “Nightmare” to some, “fairness” for others Some members of Congress objected to the decision. The ruling "is a nightmare for American businesses and small online sellers, who will now have to comply with the different tax rates and rules" of each jurisdiction, said a statement by US Reps. Bob Goodlatte (R-Va.), Anna Eshoo (D-Calif.), and Jim Sensenbrenner (R-Wis.). "The dominant issues under debate in this case involved policy, not law," the representatives also said. "The briefs filed with the Court were filled with discussions of economics, the efficacy of software, trends in the retail industry, and myriad other non-legal questions. Congress is the appropriate institution to resolve these policy questions, not the Supreme Court." South Dakota Attorney General Marty Jackley, who argued the case in front of the Supreme Court, applauded the ruling. "Today's landmark decision is a win for South Dakota and for Main Street businesses across America that will now have a level playing field and tax fairness," Jackley said. "Our states are losing massive sales tax revenues that we need for education, health care, and infrastructure," he told the court during the case. Wayfair said that it "welcome[s] the additional clarity provided by the Court's decision today. Wayfair already collects and remits sales tax on approximately 80 percent of our orders in the United States, a number that continues to grow as we expand our logistics footprint. As a result, we do not expect today's decision to have any noticeable impact on our business, as it may on other retailers who do not currently collect and remit sales tax." Etsy said it hopes that Congress will "create a simple, fair federal solution for microbusinesses," like the people who sell items on Etsy's platform. "More than three quarters of Etsy sellers are businesses of one [person]. They have very different needs and challenges than larger online retailers," the company said. The South Dakota law "applies to out-of-state retailers if they have more than $100,000 in sales or complete more than 200 transactions per year within South Dakota," Jackley's statement noted.<doc-sep>WASHINGTON — Americans have done more and more of their shopping online in recent years, drawn by the promise of low prices, wide selection and buy-from-home convenience. But e-commerce has also had another edge: Many of those sales were, in effect, tax-free. The Supreme Court on Thursday moved to close that loophole, ruling that internet retailers can be required to collect sales taxes even in states where they have no physical presence. The decision, in South Dakota v. Wayfair Inc., was a victory for brick-and-mortar businesses that have long complained they are put at a disadvantage by having to charge sales taxes while many online competitors do not. And it was also a victory for states that have said that they are missing out on tens of billions of dollars in annual revenue. “State and local governments have really been dealing with a nightmare scenario for several years now,” said Carl Davis, research director at the Institute on Taxation and Economic Policy, a Washington think tank. “This is going to allow state and local governments to improve their tax enforcement and to put local business on a more level playing field.”<doc-sep>Alaska, Delaware, Montana, New Hampshire and Oregon have no state-level sales taxes. If you reside in a state with sales taxes, you were already required to report and pay 'use taxes' on your web-based purchases. The U.S. Supreme Court ruled that states can require internet retailers to collect sales taxes, even if the merchant doesn't have a physical presence there. JGI/Tom Grill | Getty Images If you've been ducking sales taxes for your online purchases, it's game over. The Supreme Court is about to make it easier for your state to collect its share. In a 5-4 ruling in favor of South Dakota and against online retailer Wayfair, the court decided that states can require merchants to collect sales taxes for online purchases. Online shoppers who reside in one of the 45 states that have a sales tax should have been reporting and remitting those levies to their state of residence. If you haven't been doing this, you might get a nasty surprise at checkout if your state successfully pushes online merchants to collect those taxes. "This is about improved enforcement of a tax that's already on the books," said Carl Davis, research director at the Institute on Taxation and Economic Policy. "For years, shoppers have been able to evade these taxes by shopping with certain online retailers." Here's what you can expect. Use taxes Getty Images The Supreme Court's decision overturns a 1992 ruling in Quill Corp. v. North Dakota, which found that states could not require retailers to collect sales taxes unless they had a physical presence in the same place where the buyer is located. Major online retailers — namely Amazon — have fallen under that rule by building data centers and other facilities in multiple locations. Amazon has been collecting sales taxes nationwide since April 1, 2017. Shoppers pay either a sales tax or use tax when they make purchases. If your state hasn't assessed you a sales tax for your online shopping, you should know you're probably on the hook for a use tax instead. This levy applies to items purchased outside of your home state. These are generally assessed at the same rate as a sales tax, but the burden of reporting and remittting the money owed falls on the consumer. "It's important to keep in mind that as a consumer, you already owe taxes on those online sales," said Howard Gleckman, a senior fellow at the Tax Policy Center. "When you file your return, you also have to file a use tax report and pay taxes there — and nobody does it." Simplified collection Fizkes | Getty Images The Supreme Court's decision will likely encourage states to require merchants to collect sales taxes, which will allow those jurisdictions to rely less on consumer-reported use taxes. "As a matter of convenience, assuming I want to pay the tax, I'd rather have it collected by the retailer than to keep all my receipts and fill out a form," said Gleckman. "If you're a taxpayer who truly complies with the law, it makes your life easier, not harder," he said. Compliance for sellers Photo by Hero Images<doc-sep>WASHINGTON — A closely divided Supreme Court upended the nation's Internet marketplace Thursday, ruling that states can collect sales taxes from 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. But the justices did not specify what types of exceptions states may impose to limit the burden on small businesses. Justice Anthony Kennedy wrote the 5-4 decision, jettisoning the court's longstanding rule that states cannot require companies without a physical presence to collect sales taxes. He was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch. "The Internet's prevalence and power have changed the dynamics of the national economy," Kennedy wrote. "This expansion has also increased the revenue shortfall faced by states seeking to collect their sales and use taxes." 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 burden will fall disproportionately on small businesses," Roberts said. "The court's decision today will surely have the effect of dampening opportunities for commerce in a broad range of new markets." The ultimate impact of the ruling remained in doubt, and lawyers for online retailers warned of future lawsuits to determine what businesses and consumers will have to do. The ruling only directly affected South Dakota, which had sought to collect taxes from online retailers with more than $100,000 in annual sales or 200 transactions in the state. "States would be well advised not to try to go further than South Dakota did,” said former U.S. solicitor general Paul Clement. “If a state deviates from that model, they’ll be asking for trouble." 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 the South Dakota law and its exemptions for the smallest retailers, the justices nevertheless opened the door to states that may want to collect sales taxes from a larger number of sellers. Kennedy said Congress or lower courts could step in to referee those situations. "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," he 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.) “States have long fought the battle for Main Street businesses, and now, with today’s ruling, all businesses will compete on a level playing field,” South Dakota Gov. Dennis Daugaard said. Three large online sellers that had challenged the state's law — Wayfair, Overstock.com and Newegg — warned that 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 spend nearly $500 billion shopping online, a 10 percent 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 including South Dakota eventually did so, but the nation's largest states, with 70 percent 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 percent 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. Reaction to the high court's ruling was mixed. State government groups hailed it as a boon for their revenue base, as well as a playing-field equalizer. But some lawmakers in Congress vowed revenge. “The Supreme Court has given the green light for states to establish an underground, nationwide, privatized tax-collecting bureaucracy," said Sen. Ron Wyden, a Democrat whose state of Oregon has no sales tax.<doc-sep>
States will be able to charge sales tax on online purchases thanks to the Supreme Court In a five-to-four decision issued today, the Supreme Court ruled that states can make online businesses collect sales taxes — even if they don’t have a physical presence in that state. Today’s ruling overturns a decision from the Court in 1992 that paved the way for the explosion of online retail in the United States. At issue was the Quill Corp. v. North Dakota decision, which ruled that companies need to have at least some physical connection with a state for that state to require that company to pay taxes. Today’s ruling caused publicly traded e-commerce company share prices to tumble, with Shopify, Etsy, Amazon, eBay, Alibaba all recording losses in midday trading on their respective U.S. exchanges. It’s a huge win for vendors with physical storefronts, which have long argued that their online counterparts enjoyed an unfair advantage because they didn’t have to charge customers local sales tax. Local governments may also see a windfall as a result of the ruling, as the government estimates that between $9 billion and $13 billion in potential tax revenue is left on the table, thanks to earlier Supreme Court decisions on the taxation of online purchases. Writing for the majority, Justice Anthony Kennedy said: Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own. This “guarantees a competitive benefit to certain firms simply because of the organizational form they choose” while the rest of the Court’s jurisprudence “is all about preventing discrimination between firms.” … In effect, Quill has come to serve as 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—something that has become easier and more prevalent as technology has advanced. 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. First, the court did not rule out the possibility that states may not collect taxes on all online purchases, given the negligible size of some transactions. And the court didn’t say whether states could retroactively seek sales taxes. That’s a big issue, considering that e-commerce sales in the U.S. were $435.5 billion last year, versus $180 billion in mail-order sales in 1992 when the court issued its first ruling on interstate sales and taxes. For most large online retailers (including Amazon — the country’s largest), the decision will have little impact, since they’ve been voluntarily paying state sales taxes for years. Instead, the burden will be on earlier-stage companies that don’t have the same sort of scale and which will be facing more operational costs as a result. “Generally of the opinion that it’s not going to have a major impact on the larger e-commerce companies as many have already been collecting state sales tax for years,” wrote one venture capital investor whose firm is heavily invested in e-commerce. “The burden is going to be higher on SMBs because of the admin work required for each state — there is/will be software to simplify this, but nonetheless the impact is going to be greater on the smaller/high growth e-commerce companies,” the investor noted. Chief Justice John Roberts agrees. In his dissenting opinion, Roberts wrote: