NRF Says Supreme Court Sales-Tax Ruling Levels the Playing Field

Yuri Gripas  Reuters

Yuri Gripas Reuters

Consumers can expect to see sales tax being charged on more online purchases - likely over the next year and potentially before the Christmas shopping season - as states and retailers react to the court's decision, said one attorney involved in the case.

Local governments may also see a windfall as a result of the ruling, since the government estimates that between $9 billion and $13 billion in potential tax revenue is left on the table, thanks to earlier Supreme Court decisions on the taxation of online purchases.

Thursday's 5-4 ruling by the nation's highest court overruled its own 1992 ruling, which kept states from requiring merchants to collect sales tax unless they had a physical presence in the state. Customers were generally supposed to pay the tax to the state themselves if they don't get charged it, but the vast majority didn't.

"The Quill Court did not have before it the present realities of the interstate marketplace, where the Internet's prevalence and power have changed the dynamics of the national economy", Justice Anthony Kennedy wrote in the ruling. Justices Ruth Bader Ginsburg, Clarence Thomas, Samuel Alito and Neil Gorsuch joined his opinion.

"Consumers are used to paying sales tax, so no big deal", Tim Bajarin, principal analyst with Campbell-based Creative Strategies, a market researcher, said Thursday.

But Karr said he wasn't concerned about challenges complying with new regulations that might not be consistent state to state.

The burden will fall disproportionately on small businesses. Lawmakers in the state, which has no income tax, passed a law created to directly challenge the physical presence rule.

In the scenario where a New Yorker buys an OR bike, Lehner said it's important to understand that if it was purchased through a large online retailer like Amazon, the likelihood is that the sales tax would have been paid anyway. That's because they typically have a physical store in whatever state the purchase is being shipped to. North Dakota case - that allowed catalog and mail-order sellers and, later, online retailers to forgo sales tax collection in states where they lacked a physical location.

But sellers that only have a physical presence in a single state or a few states could avoid charging customers sales tax when they're shipping to addresses outside those states. "Nor would it be worth the hassle to charge them sales tax up front and then send a refund later if the tax isn't required". "The expansion of e-commerce has also increased the revenue shortfall faced by states seeking to collect their sales and use taxes, leading the South Dakota legislature to declare an emergency". More than a dozen states have already adopted laws like that ahead of the court's decision, according to state tax policy expert Joseph Crosby.

Trump has repeatedly made clear that he thinks online retailers should collect sales taxes.

Chief Justice John Roberts led the dissenting opinion, in which he and Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan argued that Congress, not the court, should decide the online sales tax issue.

States would have to adopt laws such as South Dakota's first, which was the subject of the Supreme Court ruling (PDF).

Big Supreme Court win on internet sales tax - about time! "Today's ruling sets the stage for states to begin leveling the playing field for brick-and-mortar retailers by treating online transactions in the same way they treat in-person ones", commented Andrew Harig, senior director of tax, trade and sustainability at FMI. After the Supreme Court's decision was announced, shares in Wayfair and Overstock both fell.

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