Online Shopping Could Get Costlier in U.S.: SCOTUS Leaves Colorado's Internet Sales Tax In Place, Setting Legal Precedence For States To Start Taxing Online Purchases

Online Shopping To Get Costlier in U.S.? SCOTUS Leaves Colorado’s Internet Sales Tax In Place

Online shopping in the United States could soon get pricier owing to the U.S. Supreme Court’s decision not to hear a Colorado internet sales tax collection case. With the case challenging the law thrown out, internet sales could soon be taxed, thereby increasing the burden on buyers across the country.

SCOTUS confirmed this week that it won’t hear a Colorado internet sales tax collection case. A direct repercussion would be higher internet sales tax collections across the country. While the ruling might not have any immediate ramifications, there are several states that have been actively eyeing the rising instances of online shopping in the U.S. and are eagerly seeking a slice of the pie by trying to tax online transactions that take place within their jurisdiction. The states have long claimed that billions of dollars in sales taxes are lost annually to increasingly popular internet retailers.

Essentially, the SCOTUS would not hear a challenge to a Colorado law requiring online sellers such as Amazon.com to notify customers and the state how much they owe in taxes. Back in 2010, the state of Colorado sought to mandate online retailers to notify customers to pay sales tax and report purchases to the state. In response, the Data and Marketing Association challenged the law, and as a result, a federal judge put the law on hold in 2012.

A year later, a federal appeals court supported Colorado. The association then approached the Supreme Court of the United States. The case rested on a simple argument that the state-specific law, applicable to out-of-state retailers, would interfere with interstate commerce. The SCOTUS’ refusal to hear the appeal could invariably have severe implications not just for the internet-based shopping portals, but it would also undeniably increase the burden on shoppers, cautioned Emmett O’Keefe, a vice president of the association.

“It will only encourage other states to adopt similar laws and regulations that are designed to put arbitrary burdens on out-of-state sellers.”

Besides Colorado, at least three other states — Louisiana, Oklahoma, and Vermont – have passed similar laws that could take effect given the resolution of the Colorado case, reported KSL.com. Incidentally, SCOTUS’ decision not to hear the appeal is by no means a direct or indirect endorsement of the Colorado internet sales tax law. However, other states would invariably consider the SCOTUS’ decision as a green light to intensify their collection efforts.

Speaking about the implications, Tim Hoover, spokesman for the Colorado Fiscal Institute, which supported the law, said, “This settles the issue, once and for all, that the 2010 law is constitutional, it was not an undue burden on business.”

Interestingly, online shoppers have always owed state sales taxes on their purchases, reported Phys.com. However, the rule has been widely ignored for many years. Nonetheless, states have been actively trying to hunt for ways to capture those elusive tax dollars. Unfortunately, according to current laws, a physical presence of the company is required to enforce the sales tax collection.

States are expected to pounce on the opportunity indirectly presented by the SCOTUS because sales tax is a very lucrative source of income. In fact, sales taxes account for about a third of revenue for many states. The collection takes more prominence in states such as Texas and Florida that do not tax income.

Online shopping has gone nowhere but up for the last few years. In general, digital shopping portals have witnessed a growth of about 15 percent annually. Needless to say, taxes on these sales have become too big to be ignored. Colorado officials claim the state has been losing as much as $172.7 million a year.

[Featured Image by Johnnie Davis/Getty Images]

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