Published: Mon, April 16, 2018
IT | By Lester Massey

Question of sales tax on online purchases goes to Supreme Court

Question of sales tax on online purchases goes to Supreme Court

Clicking "checkout" on an online purchase could cost more after a Supreme Court case being argued April 17.

Stephanie Martz, the federation's general counsel, said in an interview the case gives the Supreme Court a chance to adapt the law to new circumstances prompted by the rise of internet shopping.

In 1992, during the era of mail-order catalog shopping, the Supreme Court ruled that retailers can only be required to collect taxes in states where the company has an actual store or physical presence.

If it's reversed, that could mean all online retailers have to collect taxes everywhere.

Wayfair, a Boston-based website that sells furnishings, opened two ME call centers in 2016, one in Bangor and one at Brunswick Landing, planning to hire close to 1,000 people.

At the time, the court cited state sales tax laws that were too complicated for retailers to know how much to collect unless they had a physical presence in that specific state.

Retailers like Amazon, Walmart, Target, Apple and other major companies do now collect sales tax via their ecommerce channels, so that's not what this case is after.


But other online sellers, from 1-800 Contacts to home goods site Wayfair, can often sidestep charging the tax.

"I think you're going to see a flood not only of demands for ongoing tax collection but retroactive audits", said Andy Pincus, a Washington lawyer who filed a brief on behalf of EBay and a group of small businesses that oppose the states. Although all collect taxes in other parts of the country - 25 states for Wayfair, eight for Overstock and six for Newegg - they've been able to skirt South Dakota because they don't have a physical presence there.

Large retailers want all businesses to "be playing by the same set of rules", said Deborah White, the president of the litigation arm of the Retail Industry Leaders Association, which represents more than 70 of America's largest retailers. The online giant is said to account for more than 40 percent of USA online retail sales.

President Donald Trump has slammed the company, accusing it of paying "little or no taxes" to state and local governments. However, GAO also estimated that untaxed online sales would make up just 2 to 4 percent of state and local sales tax revenue.

Numerous sales on Amazon's and Walmart's sites are actually done by smaller retailers using those sites as their platform. Amazon collects sales tax on its own products, but not on other businesses' products that are sold through its website. However, the vast majority of purchasers do not pay tax on these transactions (98-99%), and it's likely that many aren't even aware of this law.

Retailers fighting the states say they would be hit with heavy costs of complying with rules for thousands of products in thousands of cities, counties and even airports that serve as their own taxing jurisdictions.

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