Supreme Court closes online sales tax loophole

States stand to pocket billions as Supreme Court rules internet businesses must collect sales taxes

Some Marketplace sellers have contracted with Amazon to collect sales taxes for them.

Quill imposes the sort of arbitrary, formalistic distinction that the Court's modern Commerce Clause precedents disavow in favor of "a sensitive, case-by-case analysis of purposes and effects".

As part of the decision, Justice Anthony Kennedy, who wrote for the majority, pointed out how much the landscape has chanced since 1992.

Furthermore, Kennedy said, the previous decisions effectively functioned as a "judicially-created tax shelter" for out-of-state retailers, and put local businesses at a "competitive disadvantage".

In dissent, Roberts passionately wrote about the plight of the economically disadvantaged shopper whose wages have stagnated and can't bear even a marginal cost increase to their core purchases.

"Any adjustment to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress", Roberts wrote.

"The Court should not act on this important question of current economic policy, exclusively to expiate a mistake it made over 50 years ago", he said.

Nebraska Tax Commissioner Tony Fulton said Thursday morning that officials were still reading the court opinion and could not comment on how it might affect the state. "Wayfair has long supported a legislative solution that would establish a level playing field for brick-and-mortar and online retailers by permitting states to collect sales tax on online sales".

The suit was brought before the Supreme Court as "South Dakota v Newegg, Wayfair, and Overstock".

The majority agreed that South Dakota's argument for an economic presence - not a physical one -should be the basis for taxing a sale.

The decision will also have dramatic consequences for small online retailers that do business in many states.

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On the flipside, USA states will benefit to the tune of somewhere between $8bn and $33bn annually in increased revenues. "It's going to revive Main Street South Dakota and Main Street America".

She pointed to a local shoe store, for example.

Although taxpayers are legally obligated to pay the tax on online sales, few actually do. That is likely to change now. That won't necessarily be the case at Amazon, the world's largest online retailer, which already collects sales tax in every state that has such a tax.

Meanwhile, those opposed to an internet sales tax are warning that the ruling could hurt businesses as they struggle to comply. Unless Congress acts, that is - lawmakers have avoided enacting legislation to address the issue until this point.

"Will states step forward and pass laws similar to South Dakota?" asked Annette Nellen, director of the Masters in Science in Taxation program at San Jose State University, on Thursday.

States can, however, begin passing laws that require online retailers to collect sales tax from customers even if they have no physical presence in a state.

Now that Amazon's distribution network spans the country, it collects sales tax nationwide, though it doesn't collect on behalf of third-party sellers.

The ruling opens the door for some New Hampshire-based retailers to be forced to collect sales tax from online customers living in other states.

The decision [PDF] will have a huge impact on American ecommerce, with large companies required to calculate, charge and hand over billions of dollars through dozens of different taxes.

South Dakota Attorney General Marty Jackley, who argued the case in front of the Supreme Court, applauded the ruling. North Dakota reaffirmed that out-of-state vendors did not have to collect sales taxes.

But, he said, "I think that it's safe to say there's a substantive amount of money here".

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