It overturns a 1992 Supreme Court decision on a North Dakota case that only required taxes on goods from a business located inside the state, letting mail-order catalog sales to go untaxed. The court found the standard doesn't jibe with current-day online retailing. All but five states impose sales taxes. But others have resisted, making Thursday's decision significant. It will leave shoppers with lighter wallets but is a big financial win for states. South Dakota law, the focus of the court ruling, requires online retailers with more than $100,000 in annual sales to collect taxes. Big victory for fairness and for our country.
Besides, Kennedy continued, "A virtual showroom can show far more inventory, in far more detail, and with greater opportunities for consumer and seller interaction than might be possible for local stores".
Broader taxing power will let state and local governments collect an extra $8 billion to $23 billion a year, according to various estimates.
The new ruling will force online retailers to pay billions more in taxes, dealing a blow to smaller companies that were previously exempt from state taxes. "Over 10,000 jurisdictions levy sales taxes".
The cases the court overturned said that if a business was shipping a customer's purchase to a state where the business didn't have a physical presence such as a warehouse or office, the business didn't have to collect sales tax for the state. "Here in California, we already pay sales taxes on Amazon transactions". Justice Anthony Kennedy wrote the 5-4 decision, joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch.
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South Dakota has estimated that it could take in up to $50 million a year in additional revenue with these taxes being collected.
Nellen said it's also possible Congress will step in and "tone down" the ruling, or "require states to do something to make it easier".
"This ruling clears the way (for) all retailers to compete under the same sales tax rules whether they sell merchandise online, in-store or both", said National Retail Federation president and CEO Matthew Shay. "Nobody does it, but they actually technically do owe it", said Howard Gleckman of the Tax Policy Institute. That older case prevented states from collecting a sales tax from retailers without a physical presence in their state. Online sellers of expensive items like furniture and jewelry could see a diminished advantage over brick-and-mortar rivals that collect sales tax. Other states looking to tax internet sales will also likely have to exclude small businesses in order to withstand legal scrutiny.
That said, South Dakota's tax system includes several features that appear created to prevent discrimination against or undue burdens upon interstate commerce.