The Supreme Court ruled Thursday that states can compel retailers to collect sales taxes even if they don't have a physical presence in the state, effectively paving the way for more taxes on online shopping.
The Supreme Court's 5-4 decision overruled a 1992 ruling that found the Constitution didn't allow states to require businesses to collect sales taxes unless they have a substantial connection to the state.
Boston-based Wayfair says it has been collecting sales tax as it has opened warehouses across the country to ship its sofas, rugs and other products. Those retailers understandably have had concerns over the years when they faced increasingly intense competition from online sellers who, in some cases, boasted that purchases from their sites were not subject to the same taxes that would need to be added to the price of the same goods from a local store. "Now our members are going to be able to figure out how to construct their businesses without worrying about whether putting a distribution center on this side of a state line or that side of the state line will result in a different tax implication". They are linked to databases that track tax rates in the 45 states that charge sales tax, and in the thousands of counties and municipalities that have their own taxes. By design, South Dakota lost before its state supreme court and appealed to the U.S. Supreme Court.
"What this really does is it provides some fairness and equality to your local merchants".
The decision in South Dakota vs. Wayfair is a victory for states who argued they were losing out on billions of dollars each year. That essentially shifts more of the tax burden and the responsibility for funding government functions from public education to social services to Floridians who buy locally and away from those who buy online.More news: Nick Jonas Makes It Official With Priyanka Chopra On Instagram
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The South Dakota law challenged in the case provided that a business having $100,000 in annual gross sales in South Dakota, or conducting 200 business transactions in South Dakota, needed to collect South Dakota's sales tax on those sales or transactions. North Dakota, that involved mail-order catalogs.
Regardless of where new sales tax laws come from, small sellers are likely to be seriously affected. More than a dozen states have already adopted laws like that ahead of the court's decision, according to state tax policy expert Joseph Crosby.
South Dakota passed a law in 2016 that would require out-of-state retailers to collect and remit sales tax similar to in-state retailers.
But, she said, those customers don't always pay sales tax. By early 2017, Amazon was collecting sales taxes in all states that have sales taxes, but it was doing so only for merchandise it sells directly, not for merchandise other retailers sell on its platform.
Wayfair said it already collects sales taxes on 80 percent of its US orders. Many states will still have to pass laws in order to do that, so it won't be instantaneous. He estimates his practice loses more than $75,000 in sales annually to online stores. Must sellers immediately begin collecting sales tax for all states and all localities?