SCOTUS Online Ruling

PUBLISHED: 6:20 AM 23 Jun 2018
UPDATED: 5:37 PM 23 Jun 2018

SCOTUS Decides On States Having Online Tax Power

The ruling changes the online retail landscape substantially.

The Supreme Court decided a case today that will have widespread implications for those who shop online or use the internet to sell their wares.

For many, it has been a disappointing season of rulings and findings from the United States Supreme Court. Many decisions were narrow in scope and outright avoided the larger issues at play, such as the Masterpiece Cakeshop ruling, while others did nothing to establish a legal precedent, such as this week’s ruling on gerrymandering.

Yet, more than 40 states in the nation asked the highest court in the land to overrule two decisions from the past iterations of the court, which prevented states from being able to tax purchases made by people outside the state. Basically, online sales have been tax exempt.

In the latest ruling from the Supreme Court, the majority of Justices decided that states could collect sales tax from out-of-state purchases made online, and declared previous decisions on the matter “flawed.” This is a shocking development, though not a wholly unexpected one.

On Thursday, the Supreme Court ruled in a 5-4 decision that states could, in fact, collect sales tax on purchases made by those from out-of-state, including purchases made online, whether the business had a physical presence in the state or not.

Before, businesses only had to collect sales tax for purchases made in states where they had a physical presence; a store, a warehouse, something like that. If they didn’t have a location in the state, they didn’t collect taxes for the state.

Technically, the customers were responsible for paying sales tax to the state.

In practice, this was hardly ever enforced, and most customers never had any idea that they were supposed to keep track and provide the state with the sales tax for their out-of-state purchases.

According to Justice Anthony Kennedy, though, the previous decisions were ‘flawed.’

In the opinion, which was written by Kennedy and supported by Clarence Thomas, Ruth Bader Ginsberg, Samuel Alito, and Neil Gorsuch, he said that the ‘physical presence rule’ laid down by past courts had less validity with each passing year.

He also suggested that when the rule was first concocted, it was an improper application of the Commerce Clause.

The change to the rule is a ‘big’ win for states, who are going to be able to collect a lot more sales tax, maybe even billions of dollars more than before.

It is also a big win to large chain stores and department stores, which had a physical presence in every state, or almost every state, well before now.

Amazon.com also collected sales tax for every sale they made, although they were not legally required to. However, the business had a warehouse in almost every state, and they just decided it was simply a good idea to collect the tax.

However, smaller sellers, who sold their goods through Amazon, did not necessarily demand that customers pay sales tax.

Sellers who used eBay, Etsy, and other similar platforms to move products online, also generally did not collect sales tax, unless the products were sold to someone in the same state.

The National Retail Federation, a trade group for stores that have multiple locations, heralded the decision as a wonderful choice, and one that was welcome.

Still, they suggested that the federal government should come together and write the laws concerning when and how the sales tax would be collected and turned over to the various state governments and their revenue-collection services.

Dissenting, Chief Justice John Roberts, along with the remaining three members of the court, pointed out that such a choice should be left up to Congress, not the courts.

Indeed, in his dissenting opinion, Roberts wrote that Congress should change the rules, if they found it necessary, and that this was true of any alteration to rules “with the potential to disrupt the development of such a critical segment of the economy.”

The case that brought about this change concerned a law passed by the state of South Dakota in 2016.

At the time, South Dakota’s governor said that the state was losing out on million annually by not collecting sales tax.

The state even went so far as to sue several of them, including Newegg, Overstock.com, and Wayfair, the home goods company. The case that the Supremes decided on was South Dakota v. Wayfair.

In deciding to change the law and abandon the physical presence rule, the court did as President Donald Trump asked. After the decision was announced, the value of stock in Wayfair and Overstock.com fell around 3 percent each.

It’s a rough day for anyone who does a lot of their shopping via the internet, and for anyone who ran a small retail store or operation online. At least states will have more money to waste, though.