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

Jermaine Castillo
June 22, 2018

The U.S. Supreme Court on Thursday ruled in favor of states being able to force retailers to collect sales taxes no matter where the seller operates its business. He also had supported Nebraska joining with 33 other states and the District of Columbia past year in supporting South Dakota's case before the high court.

In anticipation of the ruling, IL lawmakers included language in budget bills passed last month to allow the state to begin collecting sales tax from a broader swath of online purchases.

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. "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". North Dakota case in South Dakota v. Wayfair.

Colorado already has a law in place prodding collection of sales taxes from out-of-state online retailers. "Its advertising seeks to create an image of lovely, peaceful homes, but it also says that "'[o] ne of the best things about buying through Wayfair is that we do not have to charge sales tax.'" .

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

The South Dakota law, enacted in 2016, required out-of-state online retailers to collect sales tax if they amass $100,000 in sales or 200 separate transactions.

IL consumers are supposed to pay use tax to the state if sales tax isn't charged on a purchase, but experts say underreporting is an issue. "Over 10,000 jurisdictions levy sales taxes, each with [different rules]".

Not having to pay state sales tax also gave many internet retailers an edge on their brick-and-mortar counterparts, as sales tax contributes to the overall purchase price of a good.

The original decision had the unintended but incredibly beneficial impact of boosting e-commerce in the early days of the internet. Forty-five of the 50 states impose sales taxes on purchases. As it started building fulfillment centers, at first it went to states with either no sales taxes or low populations where it didn't do a lot of business anyway. After the decision was announced, shares in Wayfair and Overstock both fell, with Wayfair down more than 3 percent and Overstock down more than 2 percent.

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South Dakota Attorney General Marty Jackley, who argued the case in front of the Supreme Court, applauded the ruling.

Consumers can expect to see sales tax charged on more online purchases - likely over the next year and potentially before the Christmas shopping season - as states and retailers react to the court's decision, said one attorney involved in the case.

"Any state with sales taxes already has some sort of variance when it comes to exemptions and reporting rules", he said.

Quill stated that USA states could only change sales taxes on companies with a physical presence in the state. But the tax is not applied to "third-party" sales through the Amazon network.

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