US states to collect sales taxes on online transactions following Supreme Court ruling

Published on: 22nd June 2018

A closely divided Supreme Court ruled yesterday that states can collect sales taxes from most online retailers.

The decision, which overturns an earlier Supreme Court precedent, will boost state revenues at the expense of consumers and sellers who have avoided sales taxes in the past.

Justice Anthony Kennedy said the court’s 25- and 50-year-old precedents requiring sales tax collection only from physically present businesses represent “a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a state’s consumers.”

Faced with a South Dakota law that exempted online retailers with less than $100,000 in annual sales or 200 annual transactions in the state, the justices nevertheless opened the door to states that may want to collect sales taxes from smaller sellers. Anthony said Congress could step in to set limits.

“If some small businesses with only de minimus contacts seek relief from collection systems thought to be a burden, those entities may still do so under other theories,” Anthony said. But the potential for problems, he said, “cannot justify retaining this artificial, anachronistic rule that deprives states of vast revenues from major businesses.”

In response, online sellers Wayfair, and Newegg, said online retailers could face some 12,000 local tax jurisdictions if the Supreme Court sided with the states. They warned of economic chaos — at least until Congress steps in.

Most of the top 20 online sellers already collect taxes in nearly all states, either because they have added local showrooms or warehouses, or because of state laws. The top 100 retail sellers remit about 90% of the taxes owed.


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