Supreme Court Lets States Force Online Retailers To Collect Sales Tax

The Supreme Court rules against Wayfair and other online retailers and overturns ban on the collection of online sales taxes. Jenny Kane  AP

Retailer eBay warned that taxing Internet sales would place "crushing burdens on small online businesses, causing many to curtail operations and damaging the national economy".

In a case involving MA online retailer Wayfair, the US Supreme Court Thursday opened the door for states to collect sales taxes on products their residents buy from Internet retailers in other states. Amazon.com Inc shares fell as much as 1.9 percent before paring losses.

"Rejecting the physical presence rule is necessary to ensure that artificial competitive advantages are not created by this court's precedents", Kennedy said.

State and local governments had grown increasingly agitated as sales from brick and mortar retailers gave way to online retail, which now comprises approximately 9.5% of the dollar value of total purchases.

After states and traditional retailers have grumbled about this situation for years, South Dakota finally chose to do something to change it. Although technically consumers are required to pay sales tax on all purchases, it is practically impossible to collect without the retailer applying it at the point of sale.

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Retailers said overturning Quill would allow states to go far beyond the model legislation that South Dakota passed, requiring collection by retailers with a single sale in a state or perhaps trying to force the companies to comply retroactively.

South Dakota has estimated that it could take in up to $50 million a year in additional revenue with these taxes being collected. First, the Act applies a safe harbor to those who transact only limited business in South Dakota.

Only five states do not have a state-wide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.

The ruling comes against a backdrop of Trump's criticism of Amazon, the leading player in online retail, on the issue of taxes and other matters.

But many online sellers, such as Etsy or EBay, that serve as a third party portal for thousands of small homegrown businesses that do not pay sales taxes, point to confusing tax rules that could expose them to costly audits for any revenue shortfall.

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