Online Retailers Lose State Tax Subsidy

Anna Jefferson
June 25, 2018

The US Supreme Court ruled today that states may require out-of-state online retailers to collect sales taxes on merchandise they sell in that state.

Boston-based Wayfair says it has been collecting sales tax as it has opened warehouses across the country to ship its sofas, rugs and other products.

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

"Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States".

Many e-commerce giants like Amazon and Walmart already collect sales tax because they're so big they have a large enough presence throughout various states to collect sales tax. Perhaps most importantly, the state law does not permit sales tax collection for past purchases, meaning that businesses don't have to worry about a huge tax bill that they never anticipated.

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Kennedy also said the rule had created an unfair system favoring internet retailers.

The Supreme Court's 5-4 decision overruled a pair of decades-old decisions that states said cost them billions of dollars in lost revenue annually.

The case the court ruled in has to do with a law passed by South Dakota in 2016.

Walls think people understand the importance of keeping brick and mortar businesses for our communities.

The Illinois law takes effect on October 1, and it's built on legislation passed in South Dakota that is the focus of the recent Supreme Court decision.

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The case decided was South Dakota v. Wayfair; South Dakota was suing Wayfair, an e-commerce retailer that does not collect state taxes. Bob Krist, the Democratic candidate for governor, said Ricketts' actions delayed the state from getting needed revenue. "These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause", he wrote.

Sellers that use eBay and Etsy, which provide platforms for smaller sellers, also haven't been collecting sales tax nationwide. The ruling upheld a South Dakota law that exempts sellers with $100,000 or less in sales in the state.

The Richmond Times-Dispatch says the Thursday ruling may help in-state retailers compete against online rivals. Some states have exemptions for collecting sales tax. In 2015, 72.5 percent of Tennessee's total tax revenues came from sales tax. For example, if you buy a laptop or printer from Newegg or a loveseat from Overstock you should budget for state sales tax. This was due to 50 years' worth of legal rulings which prevented states from charging sales tax on purchases made from out-of-state retailers. Reaction to the ruling is mixed Companies with a physical retail presence in states have cheered the decision since before they were at a competitive disadvantage with online sellers.

"The world has changed", she said with a smile.

Thursday's victory for South Dakota would seem to flip the script, with states less interested in enacting some sort of national legislation, and online vendors perhaps more interested.

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