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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: 2) by Arik on Friday June 22 2018, @09:57PM (3 children)
I perhaps naively assumed that any applicable sales tax on mail order was collected where the transaction took place - which is at the sellers. Yes, this certainly gives an unfair disadvantage to retailers in ares which charge sales tax, but there's a simple remedy for that, just repeal your own sales tax. That's not so hard, and it's your sovereign right!
If laughter is the best medicine, who are the best doctors?
(Score: 0) by Anonymous Coward on Friday June 22 2018, @11:02PM
Yes and no. I'm a couple hours south of Chicago. If I drive to Chicago and go shopping on Michigan Avenue I pay their higher sales tax. If someone from Chicago comes to downstate Illinois and buys a car here, they still pay Chicago sales tax on it. This may vary in other states.
(Score: 2) by AthanasiusKircher on Friday June 22 2018, @11:53PM
Generally no.
Previously, most states with sales taxes already had use taxes that required their citizens to report goods they purchased out of state and pay taxes on them (generally equivalent to sales taxes). If you didn't, you've likely been evading taxes.
Most states that do this already have in place reciprocal agreements with other states that say "If you already paid tax in state X, and then take goods home to state Y, you don't need to pay sales tax again." OR they have a similar policy that states you only owe tax if the sales tax you were charged in another state was less than the tax you'd have paid at home. (Some states calculate a credit based on all sales taxes payed elsewhere.)
There are some exceptions and complications for this for big purchases (like importing cars), but generally in most states there are already mechanisms to avoid double taxation.
(Score: 2) by VLM on Saturday June 23 2018, @12:58AM
Sourcing rules are very complicated inside states, every nuance of an activity is different. Sometimes the state appears to make stuff up WRT the 'location' of some obscure activities and situations, something just had to be chosen.
This is in addition to the different rate of taxation based on location.
I think a somewhat more precise definition of your specified problem is what if the sourcing rules for your state and another state are incompatible at the protocol level, like local state A says bill the source and remote state B says bill the destination. I believe you have to pay both in practice to stay legal.