States can collect sales tax from online sellers even if those companies don't have a physical presence in the state, The Supreme Court ruled Thursday morning in a case with far-reaching implications for the future of online commerce. As a result, states argued they would lose millions in sales tax each year. The law applies to out-of-state retailers if they have more than $100,000 in sales or complete more than 200 transactions per year within South Dakota.
It remained unclear whether the revenue could be built into any of the proposals coming before the House during debate over the latest version of the budget on Friday.
The Illinois change isn't a new tax, but rather a decision to force online conglomerates to enforce the existing statutes. Five states don't charge sales tax. Meanwhile, eCommerce businesses have claimed that their success was because of the convenience they offer, not the sales tax (or lack thereof). The ruling overturned a previous decision.
Thursday's ruling overturns a 1992 ruling in a case called Quill v North Dakota.
The high court decided that states have the right to mandate sales charges from retailers whether or not they have a physical location within the state. Amazon's a bit different; it's charged sales tax on items sold from its own inventory but not items sold by third parties.
Kennedy was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito, and Neil Gorsuch to make the decision. Justices John Roberts, Stephen Breyer, Sonia Sotomayor and Elena Kagan dissented. "Although some large online retailers like Amazon already collect sales taxes, smaller vendors don't".
Deborah White, the general counsel of the Retail Industry Leader's Association, which led the fight on behalf of big retailers for a level playing field, said the "decision is not going to be a panacea for how retail operates", but expects it to put an end to the competitive disadvantage suffered by retail stores when consumers visit them but opt to buy online.
Tax Commissioner Kaj Samsom.
If you're a big Amazon.com shopper, and live in one of the 45 states with a sales tax, you likely already pay sales tax on some orders. Among other technical and practical reasons cited by the majority for its decision was the argument that no-sales-tax rules hurt state revenues supporting schools and services. Marketplace sellers weren't previously required to automatically collect sales tax on their sales, and the ruling may hurt their sales.
Samsom said there is a "coincidental merging" of the court's ruling and the stalemate in Montpelier.
I get it: You liked not having to pay sales tax on some of the things you bought. This will create a new revenue stream from state and local governments.
"We are talking about middle-market businesses that have a CFO and maybe no tax department and that rely on an accounting firm to be their tax department", RSM's Kirkell said.
Now it's up to Congress to figure out a system for interstate commerce that's simple enough for small businesses to manage while still allowing states to determine how taxes will be collected. Those retailers may face headaches complying with various state sales tax laws, though there are software options to help. He said he was not sure that the court ruling would have a major direct impact on the shop, but he welcomed the outcome.