Supreme Court Rules in Favor of States

by | Jun 25, 2018 | NEWS

Online retailers will now be forced to collect sales tax in states where they have no physical presence.

The Supreme Court ruled Thursday in favor of South Dakota (South Dakota v Wayfair Inc. et al.), overruling a 1992 precedent barring states from collecting sales tax from companies with no physical presence in the state.

The ruling passed with a 5-4 majority.

The new ruling allows states to collect taxes from any online retailer with more than $100,000 in annual sales or more than 200 individual sales per year regardless of whether or not they have a “brick-and-mortar” presence in the state.

Shares in e-commerce sites dipped after the news, with smaller companies like Wayfair (NYSE: W), Overstock (NASDAQ: OSTK), and Etsy (NASDAQ: ETSY) taking the hardest hits.

Large retailers, like Amazon, already voluntarily collect state sales tax on consumer purchases, so will not be as heavily affected by the court’s decision. But smaller companies, like those named above, may struggle as they will undoubtedly lose customers who have been shopping online to avoid the tax.

In a statement issued the same day, South Dakota Attorney General Marty Jackley stated, “Today’s landmark decision is a win for South Dakota and for Main Street businesses across America that will now have a level playing field and tax fairness.”

Advocates of the new ruling cite significant losses in revenue and the ever-growing online marketplace as the driving forces behind the need for change. They argue that the old ruling was outdated and that the emergence and success of e-commerce calls for a reevaluation.

A federal report released in 2017 found that state and local governments reported $8-$13 billion in lost tax revenue due to the inability to collect sales tax from online retailers. That will change with the new ruling.

Opponents don’t necessarily disagree but argue that the issue should be left to Congress.