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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.
(Score: 1, Insightful) by Anonymous Coward on Friday June 22 2018, @09:53PM
Yes, but each store only considers one set of rules, that of the specific locality where that physical store is located.
If you travel from AZ to WA and make a purchase at a Seattle Best Buy, you get charged Seattle, WA sales tax, not your home AZ sales tax, in the Best Buy physical store.
So that physical store in Seattle WA only has to worry about Seattle WA sales tax rules.
You are often responsible for paying AZ their "double dip" sales tax when you return to AZ with your Seattle WA Best Buy booty. Few folks actually pay this part, however.
But, the Seattle WA Best Buy does not need to know anything about the sales tax rules in your home state of AZ.
Not so with internet retailers. They are now going to be expected to know that you are presently in AZ, and charge you tax against current AZ rules, while simultaneously knowing all the other rules for all the other localities, plus the location of each purchaser, so they can charge each purchaser the local tax rules of that purchaser.
This is where it begins to become untenable. Tracking one rule-set per physical store, based upon the physical locality of the physical store, is trivial vs. knowing all of the rule-sets in every possible taxing locality, and then tracking the location of the purchaser to match up the proper twisty rule-set to the correct purchaser location, is the nearly untenable task. Espically for small startup operators. Which is why the big boys (Amazon, etc.) supported this. It puts a huge barrier up against the formation of the next "Amazon" that could grow to rival the current "Amazon". The current Amazon is big enough they can afford to keep track of all the rules. The small internet startup (who could become the next Amazon if allowed to take root and grow) will find it much harder to take root and grow to challenge the current Amazon.