Washington could collect hundreds of millions of dollars a year in extra tax revenue from a new Supreme Court ruling that says online shoppers owe their state sales tax even if they buy from a company in another state. South Dakota law, the focus of the court ruling, requires online retailers with more than $100,000 in annual sales to collect taxes.
The Supreme Court overturned an old rule that said online stores need to have a physical location in the state to collect tax.
Its past time other online retailers such as Wayfair, which was a defendant in the South Dakota case decided by the Supreme Court, also collect sales taxes from consumers.
Yet a majority of the states say they are losing billions in revenue, and they are supported by many large, so-called brick-and-mortar retailers like Wal-Mart that do pay sales tax, regardless of whether their sales are done in stores or online.
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The decision today opens the door for states to pass new legislation and begin collecting more sales taxes from online sellers. "In effect, it is a judicially created tax shelter for businesses that limit their physical presence in a State but sell their goods and services to the State's consumers, something that has become easier and more prevalent as technology has advanced".
The ruling should also eliminate the need for the kind of workarounds that MA regulators have recently devised to snare more online vendors, such as arguing that Internet "cookies" constituted a physical presence, a policy Kennedy cited as he dispensed with the physical-presence test.
"When the day-to-day functions of marketing and distribution in the modern economy are considered, it is all the more evident that the physical presence rule is artificial in its entirety", Justice Anthony Kennedy wrote. Mail-order sales in 1992 were only $180 billion, while online sales previous year topped $450 billion. "SC already collects (sales tax) on 22 of the top 25 e-retailers".
For as long as internet shopping has been around, the issue of sales tax has been a hot-button issue.
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"CEO Matthew Shay said in a statement Thursday that the ruling clears the way for "a fair and level playing field where all retailers compete under the same sales tax rules" no matter whether they operate online, in stores or both". Chief Justice John Roberts dissented, saying Congress should be the one to decide on the issue.
"Any adjustment to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress", he wrote.
Amazon has always been the "poster child" for this problem/opportunity as they have been the dominant online-only retailer for some time. The law that sparked this challenge passed in South Dakota in 2016. However, Alaska and Montana allow individual individual cities to collect local sales taxes, according to the Tax Foundation.
Supreme Court Decides Wayfair Online Sales Tax Case
Amazon collects sales tax in all states that impose such taxes, at least for purchases from Amazon and its affiliates. South Dakota Attorney General Marty Jackley, who argued the case in front of the Supreme Court, applauded the ruling.