The ruling means that states can require Internet retailers to collect sales tax without having a physical presence in that state
By NACS Online
As Americans have shifted to shopping more online, online retailers often had a competitive advantage over brick-and-mortar locations: Many online transactions didn’t require collection of sales taxes. But late last week, the U.S. Supreme Court ruled that e-commerce companies could be compelled to collect sales tax in states where the companies don’t have a physical location, the New York Times reports.
The South Dakota v. Wayfair Inc. decision marks a victory for brick-and-mortar retailers that have long opposed the loophole allowing online competitors to forgo sales tax collection in states where they didn’t have an actual store.
“State and local governments have really been dealing with a nightmare scenario for several years now,” said Carl Davis, research director at the Institute on Taxation and Economic Policy. “This is going to allow state and local governments to improve their tax enforcement and to put local business on a more level playing field.”
The ruling fixed a 1992 decision by the court (Quill Corporation v. North Dakota) that stated the U.S. Constitution prohibited states from mandating companies without “substantial connection” to the state to gather sales taxes. But with online companies doing massive business, the 5-4 majority felt the Quill decision cost states too much annual tax revenue.
“Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers,” wrote Justice Anthony M. Kennedy for the majority opinion. “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.”