This week the Supreme Court is considering a case that could end for good a precedent that allows online retailers to not charge sales tax. Online retailers Wayfair, Overstock.com and Newegg are among those opposing South Dakota's attempt to charge online sales taxes.
Those fighting the change say that it would impose an undue burden on small retailers who would owe not just state sales taxes but local sales taxes that many states and counties also impose.
Many small retailers depend on online sales.
Many smaller retailers don't; unless they have a physical presence in the state where the buyer lives. North Dakota-established that states could only collect sales tax from a retailer with an established physical presence within their boundaries.
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For years, the issue of whether out-of-state sellers should collect sales tax had to do mostly with one company: Amazon.com.
No matter what the court decides, Congress gets the final word - if lawmakers want it. Amazon and Overstock are among the companies that say they support a nationwide law addressing internet sales taxes that would relieve retailers from dealing with a patchwork of state measures.
Initially meant to regulate catalog-based sellers, the ruling has been challenged again and again by states seeking to claim their fair shake of online sales. Wayfair argues more than 16,000 different taxing units could demand sales tax collections. "For small businesses on tight margins, these costs are going to be fatal in many cases", Andy Pincus, who filed a brief on behalf of eBay and small businesses that use its platform, told the Associated Press.
The case now before the Supreme Court involves South Dakota, which has no income tax and relies heavily on sales tax for revenue. Even retail companies without a physical store in South Dakota were required to follow the state law.
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According to the Government Accountability Office, online marketplaces could have collected between $3.9 billion and $6.2 billion in state sales tax.
South Dakota says the high court's previous decisions don't reflect today's world. "These online companies have taken advantage of a bygone decision in order to evade the tax collection duties that their brick and mortar competitors perform every day". The court reaffirmed that ruling in 1992.
Justice John Paul Stevens wrote for the court that the physical-presence requirement, despite its "artificiality", provided a clear standard for applying the dormant commerce clause. "The "physical presence" rule of those eras was enunciated by the Court long before virtual presence was even imaginable", added White. Three current justices - Clarence Thomas, Anthony Kennedy and Neil Gorsuch - have already expressed doubts about the precedent.
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