Supreme Court: Internet Companies Must Collect Sales Tax

In a major victory for sales tax fairness, the Supreme Court ruled yesterday that Internet retailers can be required to collect sales tax in states where they have no physical presence. Under a 1992 case, Quill v. North Dakota, the Court had ruled that companies needed to have nexus--a major connection to a state, whether by having facilities or sales agents there--to be required to collect sales tax. That decision came well before the explosion in Internet retailing.

In yesterday's case, South Dakota v. Wayfair, Overstock, and Newegg, the Court voted 5-4 in favor of South Dakota, which in 2016 enacted a law requiring all companies to collect its 4.5% sales tax if they had more than $100,000 in sales or more than 200 transactions in the state per year. It then sued the three defendants for not complying with the law.

As the New York Times observed, "Brick-and-mortar businesses have long complained that they are disadvantaged by having to charge sales taxes while many of their online competitors do not. States have said that they are missing out on tens of billions of dollars in annual revenue under a 1992 Supreme Court ruling that helped spur the rise of internet shopping."

Since last year, Amazon has been partially collecting sales tax: it does so for its own products in all states with sales tax, but it doesn't collect sales tax for third-party vendors on Amazon Marketplace, which represent a majority of the retail giant's sales.

Writing for the majority, Justice Anthony M. Kennedy estimated that the 1992 case caused states to lose annual tax revenues between $8 billion and $33 billion: "Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers," he wrote. "Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own."

American Booksellers Association CEO Oren Teicher praised the decision, saying, "Today's ruling represents a tremendous victory for independent booksellers and for indie retailers throughout the country. There is simply no way to overstate the importance of the decision handed down by the U.S. Supreme Court. This victory is a testament to the hard work and perseverance of independent booksellers, who began advocating on behalf of sales tax fairness almost two decades ago. Their tireless efforts played a pivotal role in this win for small businesses and e-fairness."

The ABA filed a friend of the court brief in favor of South Dakota.

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