US Supreme Court rules that states can tax online sales

Doris Richards
June 23, 2018

Nebraska already requires residents to pay online sales taxes via their income tax returns. Until now, online retailers with no physical presence in a state were not.

A U.S. Supreme Court decision requiring most websites to collect sales taxes from online shoppers should level the playing field of Minnesota Main Street retailers and their online counterparts, several state leaders said Thursday. Florida also finally should join 24 states that have adopted the Streamlined Sales and Use Tax Agreement, which provides common definitions of products and services and uniform rules to make it easier for retailers to administer and collect the tax.

As an example, lawyers for the online retailers told the high court that in IL, a Snickers bar costs more in taxes than a Twix bar, since food items containing flour are not treated as candy for tax purposes.

In the interim, many states tried in various ways to get around Quill to collect sales taxes, with some success.

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.

Shares in online retailers like (amzn), Wayfair (w), Etsy, (etsy) (ostk) and eBay (ebay) all fell in the wake of the decision. State officials put their revenue losses even higher. For example, the popular electronics seller B&H only charges sales tax in NY and New Jersey, where it has a physical presence. "Here in California, we already pay sales taxes on Amazon transactions". This will be a huge boost to state budgets, but online retailers won't be pleased.

The Supreme Court's ruling was praised by a number of retail groups, organizations representing state and local governments, right-leaning think tanks such as the Tax Foundation and American Enterprise Institute, and a bipartisan group of lawmakers.

States were eager to collect the estimated $13.4 billion in annual revenue they could potentially glean from charging online sales taxes. Meanwhile, Amazon's expansive operations meant it was already charging sales tax nearly everywhere. The suspect's lawyers argued that the evidence should be thrown out due to a lack of warrant, after their client lost in lower court rulings.

"Amazon's third-party business should be minimally affected in the long term from states imposing taxes on online sales, as the impact is equal across the e-commerce ecosystem." said Jitendra Waral, an analyst at Bloomberg Intelligence. The law that sparked this challenge passed in South Dakota in 2016. Dissenting from the decision, Chief Justice John G. Roberts Jr. wrote: "E-commerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule". Roberts wrote that Congress, not the court, should change the rules if necessary.

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