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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 jmorris on Saturday June 23 2018, @03:06AM
You were supposed to report online sales as well. Nobody did, which is why they got so hellbent on making out of state merchants collect and report. Expect the same thing to be pushed to physical retail as soon as the infrastructure is in place to permit it. Which means shopping destination cities / states are going to lose a metric assload of money and start agitating for "something" to be done.
Of course this ain't done in the courts yet. Just wait until somebody actually tries to enforce this bullcrap SCOTUS just dumped in everyone's lap. So CA gets to send auditors over to TX to go over some e-retailer's books? And if they find irregularities they do what? Extradite em to CA? Charge them in TX? Work out a reciprocal agreement with TX? Good luck in states without a sales / use tax. All those questions and more will quickly start working back up the courts. There is a reason courts have left mail order exempt from sales tax, it is a legal and regulatory nightmare.
But in the end everyone will have the rules of the worst (i.e. CA) state rammed down their throat unless they explicitly and publicly refuse business from the worst offenders. Which will trigger escrow shipping companies to suddenly take on a new importance. People in the shunned States will pay in crypto, ship to a blind address with an account code, etc. Wonder which state will become the haven state the escrow companies end up setting up shop in? Or will it be Canada?