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What the Supreme Court’s online-sales-tax decision means for Md., Va.

22 June 2018
What the Supreme Court’s online-sales-tax decision means for Md., Va.

States can collect sales tax from online sellers even if those companies don't have a physical presence in the state, The Supreme Court ruled Thursday morning in a case with far-reaching implications for the future of online commerce.

The high court has said for more than 50 years in various rulings that states can not collect taxes from sellers without a "physical presence" in those states.

Shopping centers, department stores and major retail outlets have laid off thousands of workers and are struggling to remain open as consumers turn to internet home delivery for an ever-increasing array of goods and services.

An analysis by Barclays found that Louisiana would get an estimated 3 percent bump in total tax receipts if it begins forcing out-of-state online retailers to collect sales taxes.

"Our states are losing massive sales tax revenues that we need for education, health care, and infrastructure", he told the court during the case.

On the majority side were rock-ribbed conservative Justices Clarence Thomas, Samuel Alito and Neil Gorsuch, who sided with Justice Anthony Kennedy's opinion. North Dakota, which prevented states from collecting these taxes.

Keep in mind that despite online retail's explosive growth, the internet still accounts for less than 10% of all retail sales in the USA, according to the Census Bureau. They often don't have the resources to handle the patchwork of sales taxes across multiple states, according to the retailers, while larger outlets like Amazon don't have that problem.

South Dakota was backed by 35 states in the case, each of which filed an amicus brief in support of online sales tax.

Estimates have states missing out on $8 to $13 billion just a year ago.

Brick-and-mortar retailers had argued that they were at a disadvantage under the previous law because they have to charge sales tax at the time of purchase, while online retailers did not in states where they had no physical presence or warehouse. "Today, the Supreme Court applied bacon grease to the slippery slope of states taxing and regulating outside their borders", Andrew Moylan, Executive Vice President of the National Taxpayers Union Foundation and head of the organization's Interstate Commerce Initiative, said of the ruling. Those retailers may face headaches complying with various state sales tax laws, though there are software options to help.

"This is a disastrous decision for New Hampshire's economy and does not take into account the day to day challenges of running a small business", says Senator Jeanne Shaheen.

The court decision was praised by Florida business groups. Chief Justice John Roberts joined Stephen Breyer, Sonia Sotomayor and Elena Kagan in the dissent.

"We see limited impact on Amazon", Baird Equity Research researcher Colin Sebastian said in a memo, adding, "medium-sized merchants that do not already collect sales tax in most USA states will be most exposed to today's ruling". The argument, moreover, that the physical presence rule is clear and easy to apply is unsound, as attempts to apply the physical presence rule to online retail sales have proved unworkable.

Consumers were supposed to pay the sales tax themselves, but rarely did.

Not surprisingly, Amazon.com (AMZN), Shopify (SHOP), Etsy (ETSY), Wayfair (W) and other e-commerce stocks dropped on Thursday. Shares in large chains with more stores traded higher.

That said, South Dakota's tax system includes several features that appear created to prevent discrimination against or undue burdens upon interstate commerce.