Supreme Court Ruling Gives States Power to Charge Sales Tax on Internet Purchases
The Supreme Court ruled yesterday that internet retailers can be required to collect sales taxes even in states where they have no physical presence. The decision came in the case of South Dakota v. Wayfair Inc. This Supreme Court sales tax ruling overturns a 1992 decision that said the Constitution bars states from requiring businesses to collect sales tax unless they have a substantial connection to the state.
The highest U.S. court made the decision after South Dakota in 2016 filed a lawsuit against major pure-play online retailers Wayfair, Overstock.com and Newegg regarding state tax collection.
One piece of intriguing evidence presented was that less than 2% of Americans had internet access in 1992, compared to about 89% today.
What Does This Ruling Mean
The new ruling is good news for brick-and-mortar businesses that were at a disadvantage by having to charge sales taxes while their online competitors weren’t required to do so. It’s also good news for states that will now receive tens of billions of dollars in annual revenue from taxes they will eventually charge, thanks to this decision.
South Dakota would be able to begin collecting sales tax on online purchases in 30 to 90 days. Other states will surely follow suit. Several states have passed laws similar to South Dakota’s, anticipating a ruling on their favor. All but five states — Alaska, Delaware, Montana, New Hampshire, and Oregon — impose sales taxes.
But what does it mean for you? Most likely you will have to pay taxes on many of your online purchases. If you reside in one of the 45 states that have a sales tax, you should expect for those tax free online purchases to disappear soon. For years, shoppers have been able to evade taxes by shopping with certain online retailers, or even shipping to a different state where they might have relatives or another residence.
Some smaller online sellers could be exempt from this new rule.
The ruling does make sense with the huge and growing popularity of online shopping. It gives states the power to charge tax to online retailers. Amazon was one retailer that was already collecting sales tax in states that required it. We should see the effect of it soon, once we see tax added to our totals on online purchases. We could also see other retailers going to court again over this, so it might not be the last time we hear about it.
What do you think of the ruling?