Supreme Court opens up possibility for online sales tax

Yuri Gripas  Reuters

Yuri Gripas Reuters

States may force online retailers to collect potentially billions of dollars in sales taxes, the U.S. Supreme Court said in a major ruling on Thursday that undercut an advantage many e-commerce companies have enjoyed over brick-and-mortar rivals.

It's unclear how long it could take for such sales tax collections to begin, or how much money the treasury could collect. Disagreement also emerged about whether Louisiana has several key provisions on the books to match the requirements involved in the Supreme Court ruling for online sales tax collection.

Illinois Department of Revenue Director Connie Beard says in a statement, "To be clear, this is not a new tax".

It has been developed with almost two decades of input from cities, counties, states and retailers, and it answers numerous questions around how taxes from online sales should be collected, including how local option rates are collected and remitted. First, Justice Kennedy wrote that - in today's world of growing e-commerce - the test was an unnecessarily strict threshold for determining whether or not a state or local government can require sales tax collection from a retailer.

About 16 states already have laws similar to South Dakota's that could let them require tax collection by Internet retailers in the coming months, and more could follow quickly. "Great victory for consumers and retailers". The attorney general of South Dakota, who defended a state rule that required out-of-state retailers to collect state taxes, said the decision is a win for the state and small businesses. The Marketplace Fairness Act (MFA) in the Senate and the Remote Transactions Parity Act (RTPA) in the House both guide states into SSUTA and establish systems to collect destination-based sales taxes that are fair for everyone.

Some say the ruling may cause them to hunt a little harder for the best deal, while for others, clicking checkout still saves from some unnecessary trips. The department said it would provide guidance to retailers within 30 days.

Justice Anthony Kennedy, writing for the majority, was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch.

In dissent, Chief Justice John Roberts said the court should have left it to Congress to change the physical-presence rule. He said the court had other legal tools to ensure that sales taxes don't become an "undue burden" on small businesses and startups.

"One vitalizing effect of the Internet has been connecting small, even "micro" businesses to potential buyers across the nation", he wrote. North Dakota had been "wrongly decided".

The point is further reinforced by analysts like the ones from Baird Equity Research who said they expected a "limited impact on Amazon" from the ruling which means less upside for its rivals.

He added: "Quill has come to serve as a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a state's consumer". "The Internet's prevalence and power have changed the dynamics of the national economy", the court said in its decision in the case, South Dakota v. Wayfair.

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