Supreme Court Ruling Allows States To Collect Sales Tax From Online Retailers

States can compel online retailers to collect sales tax, even without a physical presence in the state.

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States can compel online retailers to collect sales tax, even without a physical presence in the state.

It should come as no surprise that online shopping has had a noticeable impact on traditional, brick-and-mortar retail. From the alarming rate of mall closures to the shuttering of traditional big box stores, all the signs point to the simple fact that more and more Americans prefer to shop online these days, and chances are, you’ve joined that very same trend.

But it seems like the days of tax-free purchases might be coming to an end. As reported by NBC News, the Supreme Court has ruled that individual states can now force online retailers to collect sales tax.

A little background info might be in order. Both in 1967 and 1992, the Supreme Court ruled that states did not have the power to compel mail-order catalog businesses to collect sales tax unless an individual customer happened to live in a state where the company had a physical presence, which could include a distribution/shipping center, an office building, or a retail location. The reasoning behind this? The court argued that the volume of mail-order sales would be minuscule when compared to in-store sales and that the burden would be too great for companies to correctly tax mail-order customers, especially when you consider the varying tax rates from state to state.

South Dakota Attorney General Marty Jackley speaks to members of the media in front of the U.S. Supreme Court
  Alex Wong / Getty Images

This is all about to change, as the Supreme Court has voted 5-4 to allow states to collect taxes from online retailers. This decision is a victory for South Dakota, which recently passed a law to impose an “Internet sales tax.” Marty Jackley, the attorney general for South Dakota, weighed in on how the lack of taxes had affected his home state.

“Our state is losing millions for education, healthcare, and infrastructure, and our citizens are harmed by an uneven playing field.”

The debate over internet taxes has also been fueled by recent tweets from President Donald Trump, claiming that companies such as Amazon have taken advantage of the system.

“…they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!”

This isn’t entirely true, however. As of April 1, 2017, Amazon has collected taxes in 45 out of 50 states. Shortly after the ruling, shares of Amazon, Etsy, eBay, and Wayfair fell. Up until now, smaller home furnishing companies such as Wayfair and Overstock.com have been able to avoid state tax regulations due to their relatively small size as businesses, which in turn has given them competitive pricing over traditional brick-and-mortar companies.