Supreme Court's online sales tax ruling gives states a win

Sales tax now can be collected on online purchases due to a ruling from the U.S. Supreme Court

- The U.S. Supreme Court's ruling Thursday that states can require online retailers to collect sales tax on purchases made by their residents could be a boon for state and local budgets in the coming years.

Just how much is unclear, said state officials who are still studying Thursday's 5-4 ruling that overturned existing case law on collecting sales tax from online purchases from out-of-state merchants.

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.

North Dakota case in South Dakota v. Wayfair.

But sellers that only have a physical presence in a single state or a few states could avoid charging customers sales tax when they're shipping to addresses outside those states.

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The decision today opens the door for states to pass new legislation and begin collecting more sales taxes from online sellers.

But many online sellers, such as Etsy or EBay, that serve as a third party portal for thousands of small homegrown businesses that do not pay sales taxes, point to confusing tax rules that could expose them to costly audits for any revenue shortfall. For example, the popular electronics seller B&H only charges sales tax in NY and New Jersey, where it has a physical presence.

Jackley says it may take several months before the state law can be applied to all online retailers. Thanks to Amazon's nationwide network of warehouses, the company already collects sales tax for the majority of states.

"Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers", he wrote. Billions in sales every year will now be taxed, which had been left untouched for over a generation. The state argued it was losing between $48 million and $58 million per year in uncollected sales tax, and the issue ended up in the Supreme Court.

Quill stated that USA states could only change sales taxes on companies with a physical presence in the state. However, nothing will actually change until states (or the federal government) enact new regulations to force the collection of sales tax.

Supreme Court Overturns Ban on Online Sales Tax
Currently, more than 230 out-of-state, online vendors are signed up for the Simplified Sellers Use Tax program in Alabama. They argued that a decision in a case involving mail-order catalogs was obsolete in the modern e-commerce world.

Online shopping may be about to get more expensive.

In his dissent, Chief Justice John Roberts wrote that Congress, not the court, should change the rules if necessary. He argued, "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". While the Supreme Court spoke approvingly of the law it sent it back to South Dakota's highest court to be revisited in light of the court's decision.

Tucker's bill establishes a threshold for when online retailers have to collect and remit sales taxes.

Jackley presented the case to the Supreme Court this spring, with some help from South Dakota's Retail Association.

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