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posted by martyb on Friday June 22 2018, @07:51PM   Printer-friendly
from the everybody-self-reports,-right? dept.

https://www.npr.org/2018/06/21/606463186/with-billions-at-stake-supreme-court-rules-states-may-tax-online-retailers

The U.S. Supreme Court ruled Thursday that states can require retailers to collect and remit sales taxes on out-of-state purchases. The 5-to-4 decision reversed decades-old decisions that protected out-of-state vendors from sales tax obligations unless the vendor had a physical presence in the state.

Those earlier decisions, one half a century ago, the other a quarter-century ago, date back to a time when mail-order sales were relatively small and online sales were all but nonexistent. As the justices acknowledged Thursday, however, the court back then "could not have envisioned" a world in which e-commerce sales have revolutionized the dynamics of the national economy.

Writing for the five-justice majority, Justice Anthony Kennedy said that the previous decisions "were flawed," and in the modern economy, they "create, rather than resolve market distortions." In today's context, he said, the physical presence rule is "an extraordinary imposition by the judiciary on the states' authority to collect taxes and perform critical public functions."

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."

The problems with these earlier decisions, Kennedy said, were made "all the more egregious" by technological innovation. "The Internet's prevalence and power have changed the dynamics of the national economy," he wrote in the majority opinion.

[...] The decision was a victory for South Dakota, which, like some other states, has no income tax and relies on sales taxes to fund most of the state's services. Because of dramatic fall-offs in state sales taxes, the state in 2016 enacted a law to test the physical presence rule. Three large online vendors, Wayfair, Newegg, and Overstock, challenged the law in court, and lost on Thursday.

[...] "The chessboard just looks a lot different now," said Stephanie Martz, general counsel for the National Retail Federation, which includes 18,000 businesses large and small. "Now our members are going to be able to figure out how to construct their businesses without worrying about whether putting a distribution center on this side of a state line or that side of the state line will result in a different tax implication."

While the court made clear that the states do not have unlimited power to require sales tax collection, "The court blessed South Dakota's law," said Carl Davis, research director for the Institute of Taxation and Economic policy.

The law specifically protects small businesses from collecting sales taxes if they have less than $100,000 in sales or fewer than 200 transactions in the state. The state also provides sales tax collection software for free for any business that wants it, and using that software immunizes the business from audit liability. 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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  • (Score: 2) by frojack on Friday June 22 2018, @08:35PM

    by frojack (1554) on Friday June 22 2018, @08:35PM (#696943) Journal

    Both States (and, arguably, some of the in-between states as well) have done about the same to enable your sale.
    However no state or city justifies taxes based on services they provide. They don't need to. They can tax absolutely anything they want.

    Same is true of the small communities in which buyer and seller are located. Its not just STATE taxes, its also about LOCAL sales tax.

    The exemption was purely of practical basis in the past, as I've posted elsewhere in this thread. Both ends see a taxable event.
    But the seller can't be expected to know rates and rules of all tax jurisdictions.

    Part of the original reasoning for such exemptions goes back to Article I, Section 10, clause 2 [wikipedia.org] of the United States Constitution, which limited the imposition of taxes upon the exports of one state by another state. However, there is no language or history defining exactly what Exports mean. The courts way back in the past applied the prohibition to all sales between states as well as exports.

    Only later (the 1960s did they suddenly decide it only referred to EXPORTS from the US to a foreign country, (which from an interior state would necessarily have to flow through another state).

    However that interpretation made no sense at the time the constitution was written because there were no land-locked states at that time. Clearly the framers meant that tariffs and taxes could not be imposed at state borders upon the exports from other states to the taxing state.

    If such were imposed for inspection of cargo purposes, the money was to flow to the US Treasury, and not the taxing state. The wiki article explains the evolution of this clause over a hundred years. There were ties to slavery issues as well. Historically it has been ignored, as the issue never really arose.

    States and cities tax sales. It never mattered where the buyer lived until now. But now Both ends want to impose taxes on the same sale.

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