Supreme Court rules states can collect sales tax for online purchases nationwide

Marcus Newton
June 24, 2018

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. This reverses the Court's 1992 decision that state's could only collect sales tax from online retailers with a physical presence in that state, such as a warehouse or office building. The firm already collects sales tax on the goods it sells directly, but it does not always do so for products sold by independent merchants using its platform.

However, before Thursday's Supreme Court decision state leaders were bracing for companies to challenge that law in court.

Amazon, Wayfair, eBay, Etsy, and all fell in morning trading, with Wayfair at one point down by 8%.

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"Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States", writes Justice Anthony Kennedy, who authored the majority ruling. Amazon has said that half the items purchased from its site come from third-party sellers.

Under the previous law, some companies did not collect sales tax on every online purchase.

Why it matters: States had long complained that they were losing out on billions of dollars in lost tax revenues, and that the old rules failed to recognize the growing importance of the internet economy. For example, the popular electronics seller B&H only charges sales tax in NY and New Jersey, where it has a physical presence. "While we don't know how much this will specifically mean for our sales tax revenue, we are certain it will have a positive impact on our sales tax revenue". This latest Supreme Court ruling said that earlier decision was obsolete in an era of explosive e-commerce. The 1992 decision, the court found, was "unsound and incorrect", and unfairly penalized traditional brick-and-mortar retail outlets. While retailers were not required to collect sales tax, that tax was technically still owed. It required out of state retailers with more than $100,000 in SD sales to collect sales tax. "But once that happens, Trump Store and other internet retailers are going to have to start collecting sales taxes in states where they do a meaningful amount of business".

Other reports by MaliBehiribAe

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