Supreme Court closes online sales tax loophole

Supreme Court rules states can force online shoppers to pay sales tax

CNET reports that this overturns a standing 1992 decision that prevented states from collecting sales tax from online retailers that had no physical presence in their state. For decades, these sales tax laws were only applicable on purchases that were made from retailers who had a physical presence within that state.

For the full story, head on over to CNN Money. States were missing out on around 25 percent of the tax from online sales, according to the Government Accountability Office, meaning $13 billion in missed sales.

The Trump administration backed South Dakota in the case, arguing that no one could have foreseen how rapidly e-commerce would expand. South Dakota expects to collect another $48 million to $58 million in taxes a year because of this ruling.

The decision provides clarity that could lead to Congress passing legislation to create uniform national rules for collecting state taxes, to avoid a hodgepodge of individual state rules that would make the tax collection especially onerous for small e-commerce businesses.

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". But those rulings applied mostly to mail-order catalog companies.

"Attempts to apply the physical presence rule to online retail sales are proving unworkable".

The suit was brought before the Supreme Court as "South Dakota v Newegg, Wayfair, and Overstock". Also, states will be taking in more in sales taxes, which they will have to decide how to use. For example, the popular electronics seller B&H only charges sales tax in NY and New Jersey, where it has a physical presence. Prior to the ruling, sellers were responsible for collecting sales taxes if they had a presence in the state. But, if a business did not have a physical location in a state, it nearly certainly did not charge sales tax in that particular states.

Chris Geehern, a spokesman for Associated Industries of MA, a business trade group, said the court ruling has the potential to "introduce a high degree of complexity for companies that do sell things over the web".

And don't even get me started on the unfair competitive advantage an online seller gets compared to a brick-and-mortar store that has to pay taxes in the community where it is located. Then we have a handful of states who don't even charge sales tax at all.

After the ruling was issued on Thursday, brick-and-mortar stocks rallied while online retailers fell.

That's because lawmakers in Olympia have already moved to expand online sales-tax collections in bits and pieces. In South Dakota's legislation, internet vendors with at least 200 transactions or $100,000 in sales to South Dakota residents must collect a sales tax.

Wayfair said that it "welcome [s] the additional clarity provided by the Court's decision today".

The National Retail Federation, a trade association, cheered Thursday's ruling, saying it would help to create 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".

The biggest e-tailer in America, Amazon, now collects sales tax in the 45 states that charge sales tax, though it does not collect taxes on items sold by third-party sellers.

In South Dakota v. Wayfair, the question the High Court considered was this: "Should this Court abrogate Quill'ssales-tax-only, physical-presence requirement?"

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