State Sales Tax – New Supreme Court Ruling

On: June 22, 2018

This just in! The Supreme Court has made an official ruling as of Thursday, June 21, 2018, that states can now compel retailers to collect sales tax from their customers even if the retailer does not have a physical presence within the state.

This decision can have a profound impact on retailers, especially those who operate online businesses. The Supreme Court ruling was a 5-4 decision and the new ruling overturns a 1992 ruling that prevented states from collecting sales tax unless the retailer had a physical location within the state.

When determining the decision, Justices ruled that South Dakota can now collect sales tax from online retailers such as Wayfair. The court explained that the previous law encouraged and incentivized businesses to avoid a physical presence in the state. In return, this created a tax shelter. The Justices ruled that the law was outdated and needed to be updated.

Justice Anthony Kennedy said, “The Internet’s prevalence and power have changed the dynamics of the national economy. The expansion of e-commerce has also increased the revenue shortfall faced by states seeking to collect their sales and use taxes.”

While the law directly addressed South Dakota, it only affects retailers who make more than $100,000 in sales within the state. Many oppositionists fear that this new ruling is bad news for online retailers. A retail analyst with Forrester, Sucharita Kodali, explains that companies will now have to assess sales tax on customers or the companies will face a lawsuit.

Many customers shopped online companies because they did not have to pay taxes and would make larger purchases online. Changing the rules now may push consumers to shop locally for larger purchases again.

Once the new ruling was announced, shares from Wayfair, Amazon, eBay, and Etsy all fell. While the news may sound bad for retailers and consumers, the news is great for local and state governments who were growing agitated with the lack of sales tax due to online retailers. The previous law that blocked sales tax for retailers without a physical presence in states cost states as much as $13.4 billion in lost taxes last year alone.

Fortunately, many large retailers already do collect taxes from consumers such as Wal-Mart and Amazon because they have a large enough presence in most states. Smaller retailers though will feel the hit and so will their consumers. It is important to know whether or not you need to collect sales taxes and the team at Leading Tax Group can help you better understand this new law – call today.