On June 21, the Supreme Court of the United States overturned a landmark precedent in the eCommerce sales tax debate, in a narrow 5-4 ruling that cleared states to collect sales tax from online retailers, even if those companies don’t have a physical presence in the state.
Online retailers have managed to avoid paying sales tax since the initial decision in 1992.
Justice Anthony Kennedy ruled that the physical presence rules upheld in the 1992 Quill Corp. v. North Dakota and 1967 National Bellas Hess Inc. v. Department of Revenue of Ill. cases are “unsound and incorrect. A lot has changed since ’92. According to Justice Kennedy, the initial ruling was made at a time when mail-order sales totaled only $180m. “Last year,” Kennedy wrote, “e-commerce retail sales alone were estimated at $453.5B. Combined with traditional remote sellers, the total exceeds half a trillion dollars.”
Its been a long-standing complaint from the bricks and mortar sector that they have to charge sales tax, while their online competitors didn’t.
If upheld, South Dakota’s law will implement an economic standard that in South Dakota would require state sales tax collection and remittance only if an online seller does more than $100,000 worth of business, or processes more than 200 transactions in the state.
• This is a win for states and brick-and-mortar retailers that have aligned with them. States will win big if they’re able to collect the millions they say they’ve lost in sales tax dollars. Bloomberg reports, this broader taxation will let state and local governments collect an extra $8B to $23B a year.
• The National Retail Federation heralded the decision as a “major victory” that levels the playing field between online and physical retailers.
• Companies like Wayfair, Newegg and Overstock (all involved in the case), which have argued that the complexity and cost of collecting and remitting would put many small digital sellers out of business. They’ll now be required to navigate a spider web of complicated tax laws across thousands of jurisdictions. Some won’t have the capacity to make it work.