Published: Sat, June 23, 2018
IT | By Lester Massey

US Supreme Court Rules States Can Tax Online Sales

US Supreme Court Rules States Can Tax Online Sales

The Supreme Court's 5-4 decision Thursday overruled two, decades-old Supreme Court decisions that states said cost them billions of dollars in lost revenue annually. It overturned a 1992 Supreme Court ruling that established that online retailers didn't have to pay sales tax, which the New York Times says helped fuel the rise of online shopping.

The court's nine justices split five to four in overturning a prior Supreme Court decision that had held that a state can only tax sales by businesses that are physically present in that state.

Not having to pay state sales tax also gave many internet retailers an edge on their brick-and-mortar counterparts, as sales tax contributes to the overall purchase price of a good.

The decision has major implications for online retailers, including Amazon.

Jackley says it may take several months before the state law can be applied to all online retailers. Amazon only charges tax for purchases made directly from the online shop, but independent sellers using the site are not required to do so.

Large retailers including Apple, Macy's, Target and Walmart also argued the physical presence rule was unfair.


The drop in state revenue due to an increase in online sales is one reason Senator Deb Peters, an accountant from Hartford, introduced the 2016 state law that ended up making it to the Supreme Court. Billions in sales every year will now be taxed, which had been left untouched for over a generation. In dissent, Chief Justice John Roberts said Congress should be making this decision, not the courts. Pointing to the company's ads, he wrote: "What Wayfair ignores in its subtle offer to assist in tax evasion is that creating a dream home assumes solvent state and local governments". "Any adjustment to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress". "Today, the Supreme Court applied bacon grease to the slippery slope of states taxing and regulating outside their borders", Andrew Moylan, Executive Vice President of the National Taxpayers Union Foundation and head of the organization's Interstate Commerce Initiative, said of the ruling.

"Any adjustment 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 in a dissent joined by Justices Stephen Breyer, Elena Kagan and Sonia Sotomayor.

Already, South Carolina expects to collect about $346 million in sales taxes from online sales in 2017-18, according to an October analysis by the state's Revenue and Fiscal Affairs Office.

You have most likely been able to avoid paying sales tax on a lot of online purchases over the years, but that's coming to an end.

Last year, South Dakota orders reached about $85,000, or $15,000 shy of the new $100,000 threshold, Gendelman said.

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