IN officials react to Supreme Court's online sales tax decision

Marcus Newton
June 22, 2018

Local governments may also see a windfall as a result of the ruling, since the government estimates that between $9 billion and $13 billion in potential tax revenue is left on the table, thanks to earlier Supreme Court decisions on the taxation of online purchases.

But sellers that only have a physical presence in a single state or a few states have been able to avoid charging customers sales tax when they shipped to addresses outside those states.

The 5-4 decision overturns a 1992 Supreme Court precedent that effectively barred states from collecting such taxes, and could leave consumers paying more for online purchases as cash-strapped states tap a rich vein of new revenue. It's been a long-running issue for Utah, which has claimed a loss of more than $200 million in sales tax revenue from online purchases by consumers.

Or, it could raise little new money for the state.

In recent years, some states have begun requiring retailers to charge sales tax.

Now that Amazon's distribution network spans the country, it collects sales tax nationwide, though it doesn't collect on behalf of third-party sellers.

In addition to being a win for states, the ruling is also a win for large retailers, who argued the physical presence rule was unfair.

Amazon (AMZN, -1.1%) - which already collects tax on all its direct sales but not sales by independent merchants through its site - declined to comment. Marketplace sellers weren't previously required to automatically collect sales tax on their sales, and the ruling may hurt their sales. "These issues are not before the Court in the instant case; but their potential to arise in some later case can not justify retaining this artificial, anachronistic rule that deprives States of vast revenues from major businesses". The losers, said retail analyst Neil Saunders, are online-only retailers, especially smaller ones. The 1992 decision predates e-commerce and once the internet came of age it accelerated the demise of mom and pop retailers on Main Street, he said on CNBC. That software, too, can be an added cost.

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Chief Justice John G. Roberts Jr. disagreed in his dissent.

"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", he wrote. The lineup of justices on each side of the case was unusual, with Roberts joining three more liberal justices and Ginsburg joining her more conservative colleagues. South Dakota was backed by the Trump administration in the case.

Many large online retailers, including Amazon and Wal-Mart, already collect sales taxes because they have a large enough physical presence in each state to qualify as taxable by states.

In making their decision, justices ruled that South Dakota can collect sales taxes from online retailers like Wayfair, which was sued by the state.

Stock prices for major online retailers fell after the decision was announced. After doing so, it filed a lawsuit against Newegg, Overstock.com, and Wayfair to validate the law.

Earlier this year, JA and its members were featured in two amicus curiae briefs that were submitted to the Supreme Court, arguing for Quill to be overturned.

"It's a great day for South Dakota and Main Street America", said South Dakota Attorney General Marty Jackley.

Brick-and-mortar stores for years have wrestled with the reality that their online competitors could effectively sell similar goods tax-free, and thus less expensively.

Other reports by MaliBehiribAe

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