Supreme Court rules in internet sales tax case

Pool  Getty Images

Pool Getty Images

Over on NBC News, they are reporting that the US Supreme Court has ruled 5-4 that states can now force retailers to collect sales tax on online sales regardless of where the business is located.

In 1992, during the era of mail-order catalogs, the Supreme Court ruled it was unconstitutional for states to demand that out-of-state sellers collect and remit sales taxes on all purchases.

Thursday's ruling involves a dispute between the state of South Dakota and Boston-based Wayfair Inc., along with other two other online sellers, Overstock.com Inc. and Newegg Inc.

Numerous largest online retailers, such as Amazon, already pay sales taxes because they have enough of a physical presence in most states through their network of warehouses and distribution facilities to qualify as taxable by states.

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The high court ruled Thursday to overturn those decisions.

The ruling puts an end to a legal regime that "distorts free markets and puts local brick and mortar stores at a competitive disadvantage with their online-only counterparts", said Deborah White, general counsel of the Retail Industry Leaders' Association.

That will open the door to more states passing laws similar to South Dakota's.

Forty-five states rely on sales taxes for revenue, and for those states that have no income tax, sales taxes are very important.

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Amazon has always been the "poster child" for this problem/opportunity as they have been the dominant online-only retailer for some time.

After states and traditional retailers have grumbled about this situation for years, South Dakota finally chose to do something to change it.

"Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the states".

Not only does allowing states to collect these new taxes on consumers have the potential to raise online prices, it could also harm some businesses.

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