Supreme Court Rules for States in Online Sales Tax Case

Angelica Greene
June 21, 2018

Justice Anthony Kennedy wrote the 5-4 decision, joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch. But retailers with stores in the state, which do have to collect sales taxes, have long argued that the ruling put them at a competitive disadvantage with companies like Amazon.

And, in 2015, Justice Kennedy suggested he was prepared to overrule the Supreme Court's 1967 and 1992 decisions in light of modern realities.

The ruling is likely to lead other states to try to collect sales tax on purchases from out-of-state online businesses more aggressively. Until now, online retailers with no physical presence in a state were not.

States stand to gain billions of dollars with the ruling and marks a new era with an Internet economy that has boomed over the past decade and become a dominant force.

Each state has a complex sales tax system, which was cited in the 1992 Quill case as a reason against requiring businesses to collect the dues in states where they had no physical presence.

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But sellers that only have a physical presence in a single state or a few states could avoid charging customers sales tax when they're shipping to addresses outside those states.

Three large retailers-Wayfair, Overstock and Newegg-do not, and South Dakota sued them for failing to collect taxes after the state's law went into effect.

Most states would need to pass legislation before seeking to collect the additional taxes, although some have already enacted laws or regulations similar to South Dakota's.

That will open the door to more states passing laws similar to South Dakota's. South Dakota's governor has said his state loses out on an estimated $50m a year in sales tax that doesn't get collected by out-of-state sellers. The state conceded in court, however, that it could only win by persuading the supreme court to do away with its physical presence rule.

Other reports by GizPress

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