US Supreme Court Rules States Can Tax Online Sales

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The ruling stems from a dispute between three online retailers and the state of South Dakota, which passed a law in 2016 that required firms doing a certain amount of business in the state to collect sales tax from customers.

The decision, in which South Dakota prevailed over the online furniture retailer Wayfair, immediately sent ripples through the internet shopping industry sending shares tumbling in Amazon, eBay, Etsy and others.

Big chains have been collecting sales tax nationwide because they typically have physical stores in whatever state a purchase is being shipped to. The decision Thursday overturned a decades-old ruling that prevented the collection of duties on many of those sales - merchants selling goods on Amazon argued it would be onerous for them to adhere to some 17,000 tax jurisdictions in the country -including cities, counties and special taxing districts.

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The group described the decision as a "body blow" to customers and small online businesses.

State and local governments had grown increasingly agitated as sales from brick and mortar retailers gave way to online retail, which now comprises approximately 9.5% of the dollar value of total purchases.

Forty-five states rely on sales taxes for revenue, and for states that have no income tax, sales taxes are very important. Avalara helps companies around the world comply with sales tax laws using automation software. "So, by relying on a sales tax, you have to make sure it's modern and up to date". It ruled that economic activity in a state is a better measure of relevance for purposes of taxation than physical presence.

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Already, South Carolina expects to collect about $346 million in sales taxes from online sales in 2017-18, according to an October analysis by the state's Revenue and Fiscal Affairs Office. Likewise, eBay now does not require sellers to collect state sales taxes.

Although consumers have in theory always been liable for paying sales tax to their state and municipality for online orders, the reality is very different.

"This is neither the first, nor the second, but the third time this court has been asked whether a state may obligate sellers with no physical presence within its borders to collect tax on sales to residents", Roberts wrote. While retailers were not required to collect sales tax, that tax was technically still owed.

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"It levels the playing field for those who invest in brick-and-mortar facilities in our communities, pay property taxes and employ our citizens", she said. (It dealt primarily with catalog sales.) The state, which argued it lost $50 million a year in sales tax, was supported by independent retailers such as bookstores that are forced to compete with online companies but whose products end up being more expensive because they must charge sales taxes.