States can now force you to pay online sales tax

Joshua Bennett
June 21, 2018

Louisiana is one of the states that can now collect taxes on retail sales over the internet after a Thursday morning ruling by the U.S. Supreme Court.

This decision overturned a 1992 ruling, which allowed these platforms to use the internet as a tax-free haven.

"The internet's prevalence and power have changed the dynamics of the national economy", Justice Kennedy wrote.

Large online retailers, like Amazon, tend to collect sales tax in most states, but not all. North Dakota that restricts states from collecting sales tax from retailers without a physical presence in those states. Customers were generally responsible for paying the sales tax to the state themselves if they weren't charged it, but most didn't realize they owed it and few paid.

The 5-4 decision is expected to help states collect billions more in sales tax each year. It also impacts Amazon, but only for the goods it sells from third-party merchants. "It is unfair and unjust to those competitors, both local and out of state, who must remit the tax; to the consumers who pay the tax; and to the states that seek fair enforcement of the sales tax". Chief Justice John Roberts wrote a dissenting opinion.

Forty-five states rely on sales taxes for revenue, and for those states that have no income tax, sales taxes are very important. That minimum requirement was likely meant to avoid an undue burden on small-time mom-and-pop sellers on eBay, Amazon or other online marketplaces. "New Hampshire small businesses do not have the time or resources to become tax collectors for other states". "This Court should not prevent States from collecting lawful taxes through a physical presence rule that can be satisfied only if there is an employee or a building in the State".

On June 4, the last day of the special second session, Louisiana legislators rushed through a bill that used the same wording as a South Dakota law that was the subject to the constitutional challenge in the high court. South Dakota's governor has said his state loses out on an estimated $50m a year in sales tax that doesn't get collected by out-of-state sellers.

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