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Supreme Court Rules States Can Tax All Internet Sales
July 21 2018, 08:09 | Alonzo Simpson
The Supreme Court rules against Wayfair and other online retailers and overturns ban on the collection of online sales taxes. Jenny Kane AP
"The Internet's prevalence and power have changed the dynamics of the national economy", Justice Anthony Kennedy wrote for the majority.
The 5-to-4 decision defied the usual conservative-liberal lineup, with Kennedy joined by liberal Justice Ruth Bader Ginsburg and conservative Justices Samuel Alito, Neil Gorsuch and Clarence Thomas.
On the flipside, U.S. states will benefit to the tune of somewhere between $8bn and $33bn annually in increased revenues.
In Illinois, whether a shopper is charged sales tax at online checkout has depended on whether the retailer had a large enough physical presence in the state to trigger collection requirements, such as maintaining a store, office or warehouse. "You've got to have a modern sales tax, so we don't have to have any other kind of tax that people don't want", Calabro said. 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 can not be subject to the same tax for the sales of the same items. "Now Congress must respond by passing federal legislation to create a universal federal framework for sales and use tax collection in a way that benefits businesses regardless of the state where their business resides and avoids a patchwork of state-by-state laws". Prior to the ruling, sellers were responsible for collecting sales taxes if they had a presence in the state.
The decision overturned a 1992 ruling that concerned mail-order businesses, back when those sales totaled $180 million. But the third party sellers on Amazon do not.
Thursday's ruling paves the way to change that approach and require online retailers to collect sales taxes rather than putting that responsibility on the consumer. The ruling could easily improve revenue in states that have taken a hit from online sales.
Retail trade groups praised the ruling, saying it levels the playing field for local and online businesses.
Big Supreme Court win on internet sales tax - about time! That software, too, can be an added cost.
Watch for lots of news and analysis about today's decision, which may have major implications for online sellers - particularly smaller sellers.
Chief Justice John Roberts was in the minority.
"Attempts to apply the physical presencerule to online retail sales are proving unworkable". He also had supported Nebraska joining with 33 other states and the District of Columbia past year in supporting South Dakota's case before the high court.
Amazon tested that law in Texas trying to say a subsidiary was running a distribution center in Irving, but was challenged by the state of Texas when The Dallas Morning News reported the existence of the Irving facility. South Dakota had passed a bill in 2016 that said online retailers must collect sales tax if they make more than $100,000 worth of sales in their state, or do 200 transactions in their state.
Kevin Lyons, spokesman for Texas Comptroller Glenn Hegar, said, "We welcome the court's ruling in this case and are now assessing any potential revenue impacts as a result of this decision as well as whether any rule changes or legislation might be required to achieve the benefits of the decision".
The majority agreed that South Dakota's argument for an economic presence - not a physical one -should be the basis for taxing a sale.