Internet sales tax ruling a win for brick-and-mortar retailers

Joshua Bennett
June 22, 2018

In a case called South Dakota v. Wayfair (.pdf), the US Supreme Court today overruled a 1992 decision, Quill v. Heitkamp, that prevented states from requiring online retailers to collect sales tax when there was no physical business presence in the state.

After the ruling was issued on Thursday, brick-and-mortar stocks rallied while online retailers fell.

"Local sellers are going to be protected, said Jon Hearst, President of the Retailers Association of MA".

He tweeted: "Big Supreme Court win on internet sales tax - about time! This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both". That was before the surge of online sales, and states have been trying since then to find constitutional ways to collect tax revenue from remote sellers into their state. Online sellers of expensive items like furniture and jewelry could see a diminished advantage over brick-and-mortar rivals that collect sales tax. The bill would have taken effect if the Supreme Court or Congress had acted to allow such collections, as the high court did Thursday. A lack of sales tax online made it almost impossible for local stores to compete with their online rivals, South Dakota argued.

In 1992, mail-order sales in the United States totaled $180 billion. But for 65 percent of them, online sales accounted for 5 percent or less of their revenue.

The decision came on a South Dakota suit against Wayfair.com, with the state claiming the company should collect sales taxes on sales in the state.

Since Amazon has a local presence in most states, in fact, it has been collecting sales taxes for customers located in the 45 states that actually collect them since April 2017. Kennedy said that position was archaic, "unsound and incorrect" in the internet age. This will be a huge boost to state budgets, but online retailers won't be pleased. Amazon only charges tax for purchases made directly from the online shop, but independent sellers using the site are not required to do so.

The exact impact of the ruling on Florida's sales tax collections is unknown but it could be significant.

More than 40 states had submitted testimony in favor of upholding the South Dakota law. All but five states impose sales taxes.

The decision also effectively acknowledged the profound shifts in the American retail landscape. South Dakota's governor has said his state loses out on an estimated $50 million a year in sales tax that doesn't get collected by out-of-state sellers.

South Dakota's law, enacted in 2016, focused on larger out-of-state e-commerce companies, requiring them to collect sales tax if they amass $100,000 in sales or 200 separate transactions. Thanks to Amazon's nationwide network of warehouses, the company already collects sales tax for the majority of states. Now, some companies had, like Amazon had been remitting the sales tax to us already on internet sales.

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