Published: Fri, June 22, 2018
Business | By Eloise Houston

Supreme Court allows states to collect sales taxes on more online transactions

Supreme Court allows states to collect sales taxes on more online transactions

South Dakota expects to collect another $48 million to $58 million in taxes a year because of this ruling.

The court on Thursday decided in favor of states in South Dakota vs. Wayfair, a direct challenge to a 1992 decision in Quill Corp. vs.

"In 1992, it was estimated that the States were losing between $694 million and $3 billion per year in sales tax revenues as a result of the physical presence rule", he said. As the justices acknowledged Thursday, however, the court back then "could not have envisioned" a world in which e-commerce sales have revolutionized the dynamics of the national economy. It treats economically identical actors differently for arbitrary reasons.

Those parameters were created to avoid the most frequently cited concern over e-commerce state sales taxes: that they will fall disproportionately on small businesses.

The court decision could also be important in Florida because of the state's heavy reliance on sales-tax revenue. "Helping respondents' customers evade a lawful tax unfairly shifts an increased share of the taxes to those consumers who buy from competitors with a physical presence in the State".

Indeed, Justice Gorsuch once called the current system "a judicially created tax shelter".

Congress protected those Internet sellers in 1998 legislation that has since been made permanent. In a dissenting opinion, Chief Justice John Roberts argued that any rules that affect such a large portion of the economy should be legislated by Congress, not the courts.

When the court ruled in 1967 and 1992 that IL and North Dakota could not squeeze sales taxes from sellers with no presence in those states, there wasn't almost as much at stake.

That's because lawmakers in Olympia have already moved to expand online sales-tax collections in bits and pieces. Amazon actually already charges sales taxes on the goods that it sells directly.

Some members of Congress objected to the decision.

Small online businesses will be the hardest hit, said Chris Cox, a lawyer for e-commerce industry group NetChoice. Bob Goodlatte (R-Va.), Anna Eshoo (D-Calif.), and Jim Sensenbrenner (R-Wis.).

Retailers with physical storefronts celebrated the decision, as did the National Retail Federation, a trade group comprised of some of the biggest brick-and-mortar retailers in the US.

However, the four dissenting judges argued, it should have been Congress and not the Supreme Court that chose to flip the tables for the simple reason that the impact will be so significant. Soon after the law went into effect, South Dakota sued online retailers Wayfair, Newegg and Overstock for allegedly failing to comply.

However, FOX 13 reported last month that the Utah Tax Commission has been quietly inking deals with a number of online retailers to get them to collect taxes.

A "quarter century of experience has convinced me" the Supreme Court's earlier decision was no longer justified, he wrote, adding that it was "never too late" to arrive at a better position. North Dakota, which prevented states from collecting these taxes. Now, under this new decision, even if a company doesn't have a store, warehouse, or office in a state, its internet sales to that state's residents can be taxed. The losers, said retail analyst Neil Saunders, are online-only retailers, especially smaller ones.

The law specifically protects small businesses from collecting sales taxes if they have less than $100,000 in sales or fewer than 200 transactions in the state.

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