Supreme Court ruling lets states collect sales tax from online purchases

22 June, 2018, 02:27 | Author: Eric Barnett
  • Yuri Gripas  Reuters

Some retailers argued it's unreasonable to expect businesses to monitor and comply with sales tax regulations in parts of the country where they have customers, but no operations.

South Dakota's case was supported by 35 states and the federal government and saw the Supreme Court undo a 1992 ruling in which it had held that the mail-order company Quill did not have to collect sales taxes in North Dakota. Collecting taxes makes it marginally more hard for them, and so, Roberts wants the Court to leave it alone.

I'm not really a fan of stare decisis, so I'm not a fan of arguments defending it. Roberts says that Commerce Clause precedent deserved "heightened" stare decisis, which reminds me of JoAnn Galloway stating she "strenuously objects".

Before this ruling, online retailers had to have a physical presence in a state to be subjected to that state's sales tax. "For a long time, we've been pointing out a real unfairness in the fact that mega online sellers like Wayfair or Amazon or Jet were not paying the sales tax".

Dominic Calabro, president of Florida TaxWatch, a business-oriented advocacy group, said the ability to apply the sales tax to more internet sales will keep the state's tax structure in sync with the evolving economy. But some states, including Washington, have recently passed marketplace bills which force the company that provides the platform for sellers - such as Amazon, Etsy and, eBay - to collect sales tax rather than the asking the seller to do so. "There are now significant complexities in the thousands of state and local sales tax laws, including different minimum thresholds, tax holidays, and product tax category rules".

But many smaller online retailers are women, minorities, veterans and people with disabilities who have taken advantage of the protections granted by the Supreme Court and Congress over the years.

Retail trade groups praised the ruling, saying it levels the playing field for local and online businesses.


The original decision had the unintended but incredibly beneficial impact of boosting e-commerce in the early days of the internet. That software, too, can be an added cost.

Stocks of online retailers were down significantly immediately following the ruling. Dissenting justices were John Roberts, Stephen Breyer, Sonia Sotomayor, and Elena Kagan. For instance, South Dakota is hoping to collect as much as $50 million per year which is still fairly noticeable for a state that only collects $1.5B in total revenue per year.

"Will states step forward and pass laws similar to South Dakota?" asked Annette Nellen, director of the Masters in Science in Taxation program at San Jose State University, on Thursday.

Today's ruling overturns a decision from the Court in 1992 that paved the way for the explosion of online retail in the United States.

Local merchants and large chains complained over the years that shoppers used their stores as showrooms and would then go online to make the purchase tax-free.

South Dakota specifically brought this lawsuit against Wayfair, Overstock.com, and Newegg. The decision reverses a 1992 Supreme Court ruling in Quill vs. The decision noted that South Dakota is reliant on sales taxes for 60 per cent of its general fund and uses those taxes to fund essential services. The market mourned the loss of an advantage beyond convenience that e-commerce had over bricks-and-mortar.

In South Dakota v. Wayfair, the question the High Court considered was this: "Should this Court abrogate Quill'ssales-tax-only, physical-presence requirement?"

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