2018-06-27 / Front Page

SCOTUS: States can collect online sales tax

In a landmark 5-4 decision last week, the U.S. Supreme Court ruled states can force online shoppers to pay sales tax, returning more power to state governments than has been afforded them in recent years..

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

The Supreme Court has ruled for more than 50 years in various rulings that states cannot collect taxes from sellers without a “physical presence” in those states. That precedent was preserved in a key 1992 ruling by the Supreme Court in in Quill Corp. v. North Dakota.

The high court ruled Thursday to overturn that decision, which had resulted in some companies not collecting sales tax on online purchases.

“When the day-to-day functions of marketing and distribution in the modern economy are considered, it is all the more evident that the physical presence rule is artificial in its entirety,” Justice

Anthony Kennedy wrote.

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

E-commerce now makes up about 10 percent of U.S. retail sales, according to the Commerce Department.

With online sales growing 17 percent per year, reaching almost $460 billion in 2017, this rule is costing states a huge amount of revenue. Estimates place uncollected online sales tax revenues at $13 billion in 2017.

The case the court ruled in last week was forced by a law passed by South Dakota in 2016. Losing an estimated $50 million a year in sales tax that goes uncollected by out-of state sellers, lawmakers in the state, which has no income tax, passed a law designed to directly challenge the Supreme Court’s 1992 decision.

In addition to being a win for states, the ruling is also a win for large retailers, who argued the physical presence rule was unfair. Retailers including Apple, Macy’s, Target and Walmart, which have brick-and-mortar stores nationwide, generally collect sales tax from their customers who buy online. That’s because they typically have a physical store in whatever state the purchase is being shipped to. Amazon.com with its network of warehouses also collects sales tax in every state. However, third-party sellers who use the site to sell goods don’t have to.

Ahead of the Supreme Court action, the Georgia Legislature passed H.B. 61 which Gov. Nathan Deal signed into law May 3, requiring companies selling goods online worth more than $250,000 or completing at least 200 separate transactions into the state, to collect sales tax or notify customers of their tax obligations and report sales to the Georgia Department of Revenue.H.B 61 is similar to laws or revenue department rules passed in Alabama, South Dakota, and Tennessee, among others.

Supporters in the Georgia Legislature also argued small businesses based in Georgia face an unfair disadvantage when online retailers don’t collect sales tax.

The Internet sales industry opposes the ruling, based primarily on the burdens of complying with potentially hundreds or thousands of varying local and state sales tax rules around the U.S.

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