Supreme Court rules that states may require online retailers to collect sales taxes
22 June, 2018, 18:30
The Trump administration and more than 40 states participated in oral arguments in the case, South Dakota v. Wayfair, asking the court to support South Dakota's law that requires online retailers with a significant amount of business in the state to collect sales taxes. This gave them an advantage over brick-and-mortar stores.
Illinois Department of Revenue Director Connie Beard says in a statement, "To be clear, this is not a new tax". They've negotiated on a state by state basis as they've built distribution centers around the country. "This decision finally levels that playing field, and I think that's all any business owner wants".
The tax is 6.25 percent. Local governments could also get in on the action, though the mechanics of making that happen could be trickier, an LFC economist said. Thanks to a 1967 Supreme Court ruling that said states couldn't force mail-order catalogs to collect sales tax unless that company had a physical location in the state, online retailers have been able to skirt the issue of collecting sales tax. It will leave shoppers with lighter wallets but is a big financial win for states. "The Internet's prevalence and power have changed the dynamics of the national economy", he wrote.
The decision settles a long dispute over the taxing authority of states in the internet age.
Recent attempts at the Roundhouse to impose the state's gross receipts tax on internet vendors have failed - one proposal was line-item vetoed by Gov. Susana Martinez past year - but lawmakers from both political parties have described the measure as a fairness issue that could help local businesses. "Great victory for consumers and retailers".
Now, as internet sales grow - they reached $123.7 billion in the first quarter of 2018, up nearly 4 percent over the previous quarter, according to the U.S. Department of Commerce - the court has made a different decision, citing studies that suggest states lose out on up to $33.9 billion a year in uncollected online sales taxes. The South Dakota law only applied the tax to online retailers that had at least $100,000 of annual sales in the state or 200 individual transactions.
If a business had a physical address in a state, it's required to charge sales tax for all orders in that state.
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.
In fact, 52 percent of the state's general-fund revenue - which pays for schools, prisons and social services, among other programs - comes from retail sales and use taxes, according to a 2016 report.
Justice Anthony Kennedy wrote - in an opinion joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch - that the previous decisions were flawed.
"That has meant about $300 million in lost revenue every year, including $160 million for the state, $112 million for cities and $24 million for counties", Neal said.
While this ruling is beneficial to state governments, it stands to have a negative impact on retailers and consumers alike.
Many would be surprised to learn that a "use" tax is already technically required on all out-of-state online purchases. "It does seem like it should be more fair if you paid sales tax no matter where you were purchasing". "A lot of the companies that haven't been paying sales tax are going to have to start paying". It also impacts Amazon, but only for the goods it sells from third-party merchants. The issue had been pushed to the fore by South Dakota, which had argued that its recent law insisting on applying tax even to purchases made online beyond the state's borders should be upheld.
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Forty-five states rely on sales taxes for revenue, and for those states that have no income tax, sales taxes are very important. Still, almost half of Amazon's sales are through these other merchants, which could surely impact business.
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