Industry

With Billions At Stake, Supreme Court Rules States May Tax Online Retailers

With Billions At Stake, Supreme Court Rules States May Tax Online Retailers

But the high court said it was time to overturn those cases. Justices determined that the presence rule was becoming "further removed from economic reality" every year, and that the costs of honoring sales taxes were largely disconnected from whether or not a company had a physical footprint. "These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause", he wrote.

More retailers are collecting, including 19 of the 20 largest, regardless of whether they have a physical presence in the state, according to briefs filed in the case.

The decision ends years of work by the retail industry "to reverse a pre-internet era rule that distorts free markets and puts local brick and mortar stores at a competitive disadvantage with their online-only counterparts", said Deborah White, general counsel for the Retail Industry Leaders Association. That's because they typically have a physical store in whatever state the purchase is being shipped to. It also impacts Amazon, but only for the goods it sells from third-party merchants. 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. Most other major online retailers have followed suit, simply because it's become cheaper for them to collect the tax and majority have a "physical presence" in much of the country anyway, as fulfillment centers are popping up everywhere.

The 5-4 ruling Thursday is a win for states, who said they were losing out on billions of dollars annually under a two decades-old Supreme Court decisions that affected online sales tax collection.

From here on out, states can now force shoppers to pay the sales tax upfront no matter where you're buying from. Chief Justice John Roberts wrote a dissenting opinion. Lawmakers in the state, which has no income tax, passed a law created to directly challenge the Supreme Court's 1992 decision. Although technically consumers are required to pay sales tax on all purchases, it is practically impossible to collect without the retailer applying it at the point of sale.

The current regulation "allows remote sellers to escape an obligation to remit a lawful state tax is unfair and unjust", added Kennedy.