Illinois Shoppers Pay More for Online Purchases, Good News for Small Businesses

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A U.S. Supreme Court ruling on Thursday that paved the way for states to levy sales taxes on online purchases could have big ramifications in New Mexico - for shoppers, local retailers and the state's coffers.

In today's decision, authored by Justice Anthony Kennedy, the Court sided with South Dakota, which had passed a law in 2016 that required large out-of-state online retailers to collect sales taxes on merchandise sold in the state.

Given the controlling precedent of Quill, on October 2, 2017, the Attorney General's Office filed a petition for certiorari asking the U.S. Supreme Court to review the South Dakota Supreme Court decision in State of South Dakota v. Wayfair, Overstock and Newegg.

Besides its namesake site, Wayfair Inc. also owns the Joss & Main, AllModern and Birch Lane sites.

Furthermore, Kennedy said, the previous decisions effectively functioned as a "judicially-created tax shelter" for out-of-state retailers, and put local businesses at a "competitive disadvantage". Because many e-commerce companies do not collect state sales taxes on purchases, they have had an advantage over brick-and-mortar businesses that do collect it. At that level of sales, with a state sales tax rate of 4.5 percent, it would yield $253 million in revenues.

In a concurring opinion, Justice Clarence Thomas said that after ruling for the retailer in 1992, he had changed his mind. The South Dakota Supreme Court invalidated the law because Quill Corp. v. A number of states have already legislation that will trigger sales tax collection should the Supreme Court decision allow it, as it has. However, some small businesses may decide there is too much hassle in collecting the tax and curtail their online operations.

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Prior to Wayfair v South Dakota, businesses that didn't have a physical location in a state were not required to remit sales taxes to that state government for their sales. This will create a new revenue stream from state and local governments. Likewise, eBay now does not require sellers to collect state sales taxes.

More than 40 states had submitted testimony in favor of upholding the South Dakota law.

Owners who have never collected out-of-state sales tax will need to get up to speed.

The tax is 6.25 percent. Those retailers may face headaches complying with various state sales tax laws, though there are software options to help. The decisions made it more hard for states to collect sales tax on certain online purchases, and more than 40 states had asked the high court for action. In South Dakota, the minimum standards are $100,000 in sales or more than 200 transactions over a 12-month period.

The chief executive of a medium-sized sporting goods company based in San Diego, who did not wish to be identified to avoid making his company a target for state tax collectors, said it was unreasonable to expect small and medium sized businesses to deal with thousands of jurisdictions.

While the decision does not significantly change the fortunes of big chains or e-commerce retailers, the impact from the decision is likely to be felt by smaller online businesses.