Supreme Court Rules in Favor of States Requiring Sales Tax from Online Retailers

By Maura Smith on June 22, 2018

If you’re in the digital commerce industry or if you’re an online consumer, you’ve been following this. If you’re an online retailer, you’ve been following this very closely. I’m talking about the recent Supreme Court decision that gives states the OK to require that sales tax be collected from online retailers. What does this ruling essentially mean? Time will tell the overall impact it has on a consumer’s online buying experience, but one thing is absolutely certain: online shopping just got more expensive. 

In a 5-4 decision, the Justices went against more than 50 years of rulings that actually prevented states from requiring that their residents pay sales tax on any out-of-state purchases. So where did all this renewed high-level interest come from? Many believe it came from the top—literally—when President Trump very publicly (and somewhat inaccurately) tweeted his distaste for online retail Goliath, Amazon paying “little or no taxes to state & local governments.” Inaccurate because Amazon has actually imposed sales tax on 45 states since way back in April of 2017.

Flashback to 1967 when the Supreme Court first got involved. It was the dawn of mail order catalog purchases, but they were few and further between when compared to the volume of sales that brick and mortars were seeing. The rational was that since sales paled in comparison, it would prove a hardship for catalog companies to have to worry about figuring out all the different states’ unique sales tax codes.

And oh, how the times have changed. 

This time around, the majority opinion was more in favor of leveling out any brick and mortar disadvantages when it comes to their express duty to collect sales tax on all purchases made—by residents of that or any other state. But the real question is whether everyone is happy or not with this decision- and an argument can reasonably be made for both sides. Let’s take retail giant, Walmart, for example. Walmart has a physical presence in all 50 states. It has both brick and mortar stores as well as warehouses and shipping facilities, so they have long been charging sales tax on online purchases since it was beholden to the physical presence rule. Not much change there. However, many online retailers are opposed to the ruling citing that the variations in the ruling alone that span all 50 states would make calculating tax for the nearly 10K tax jurisdictions a total nightmare.

One large retailer who added to the opposition argument? eBay. And they went as far as to say the ruling would create “crushing burden” and cause damage to the economy on the macro level. One small caveat to the ruling is an allowance for very low-volume retailers who will be able to skirt around the decision. So what’s next? Well, according to Chief Justice Roberts’ dissenting opinion, he believes that the internet—and ultimately the larger economy—has flourished with the sales tax exemptions for years. He believes any change to the established order should be taken on by Congress.

What are your opinions on this new online sales tax ruling? We would love to hear what you think in the comments below.     


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