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US Supreme Court Rules States Can Tax Online Sales

22 June 2018

Shares of online retailers fell on Thursday after the Supreme Court ruled 5-4 that states have the authority to require online retailers to collect sales tax on all purchases within their borders, whether the seller has a physical presence in the state or not.

The suit (South Dakota v. Wayfair) was brought by 40 states that claim the old rule had cost them billions in lost tax revenue.

States have become emboldened to defy Quill or devise other ways to try and get the use tax owned to them by their residents for their online purchases from out-of-state retailers.

"This is a disastrous decision for New Hampshire's economy and does not take into account the day-to-day challenges of running a small business", Sen.

Later, he concluded, "Concerns that complex state tax systems could be a burden on small business are answered in part by noting that, as discussed below, there are various plans already in place to simplify collection; and since in-state businesses pay the taxes as well, the risk of discrimination against out-of-state sellers is avoided".

Small online businesses will be the hardest hit, said Chris Cox, a lawyer for e-commerce industry group NetChoice. The state appealed, and the U.S. Supreme Court agreed to hear the matter in January.

"Will states step forward and pass laws similar to South Dakota?" asked Annette Nellen, director of the Masters in Science in Taxation program at San Jose State University, on Thursday. North Dakota, that dealt with out-of-state taxes collected on catalog purchases, and the 1967 case, National Bellas Hess Inc. v. Department of Revenue of IL. "This is the type of coordination and work that you can expect from sales tax states going forward", Bullock says.

The states that are likely to see the biggest percentage increase in revenue are Louisiana, Tennessee, South Dakota, Oklahoma and Alabama, according to the Barclays research. The dissenting opinion was written by Chief Justice John Roberts, joined by Stephen Breyer, Sonia Sotomayor, and Elena Kagan.

The case, known as South Dakota vs. Wayfair, overturned a 1992 ruling made by the high court at a time when e-commerce made up a much less significant portion of the economy. Customers were generally responsible for paying the sales tax to the state themselves if they weren't charged it, but most didn't realize they owed it and few paid. But just because I can buy a unicorn from a company based on Tesla that's orbiting in space, doesn't mean I should be able to escape paying my share of the NY sales tax. Most brick-and-mortar retailers are familiar with "customers" who come in with their smartphones to look at goods they have no intention of buying from the local business.

It's the smaller businesses - some of which are third-party sellers on eBay and Amazon - that could see a greater impact.

He added that the requirement for physical presence amounted to a "judicially created tax shelter" that put online firms at an advantage over their bricks-and-mortar competitors.

On Thursday, the United State Supreme Court overturned two decisions regarding states' collection of taxes from online sales.

In recent years, some states have begun requiring retailers to charge sales tax. "There are now significant complexities in the thousands of state and local sales tax laws, including different minimum thresholds, tax holidays, and product tax category rules". The market mourned the loss of an advantage beyond convenience that e-commerce had over bricks-and-mortar.

US Supreme Court Rules States Can Tax Online Sales