Supreme Court sides with online sales tax

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Today the Supreme Court upheld South Dakota's law, with a 5-4 decision that states could, indeed, force sales taxes on residents' online purchases from out-of-state retailers.

Some states could move within weeks or months to require sales-tax collection by out-of-state retailers under existing laws, getting an expanded revenue stream in place before the busy holiday shopping season.

To tease all this out, we need to go back to 1967, when the Supreme Court first set what was known as the "physical presence" standard in its Bellas Hess decision.

That said, with the Supreme Court decision opening the floodgates to an online sales tax, businesses are anxious - and with good reason.

It's clear that the court's decision will mean extra cash for states. It stops the federal government from forcing states to prefer out-of-state businesses over Main Street. B&H doesn't require that buyers pay sales tax if they place orders outside of NY or New Jersey, and while you're supposed to later pay those uncollected funds when tax time comes around, the vast majority of people don't. The ruling explicitly exempts smaller businesses along with all but the most successful of individual sellers using, say, eBay or other online sales channels.

The ruling opens the door for some New Hampshire-based retailers to be forced to collect sales tax from their online customers living in other states. Many cable TV packages come with over $10 in government-imposed fees and taxes. Under the decision, states can now make sellers collect the taxes.

This has been a point of contention between states and online retailers for a long time.

South Dakota then filed a lawsuit to declare that the new law was valid, a suit that eventually found its way to the Supreme Court. Justice Anthony Kennedy wrote, "Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States". Because many e-commerce companies do not collect state sales taxes on purchases, they have had an advantage over brick-and-mortar businesses that do collect it.

But there can be no doubt that this ruling means a higher cost of doing business.

The rule, later approved by lawmakers here as part of an "omnibus" package of dozens of rules and regulations issued by various state agencies, has been held in abeyance pending the high court's decision. Haslam's office has yet to comment on the ruling.

Those companies - for example, Target - would not be impacted by Thursday's decision, he said. So you might have to start paying sales tax alongside those non-Prime shipping charges.

Amazon, which was not involved in the Supreme Court case, collects sales taxes on direct purchases on its site but does not typically collect taxes for merchandise sold on its platform by third-party venders, representing about half of total sales. It never made it out of a U.S. House committee. "I expect we will see both new legislation and additional legal challenges over the next few years".

The current situation where billion-dollar companies don't pay state tax is actually damaging to the overall economy and states, the court's majority opinion argued.

"It's going to be very hard for New Hampshire-based businesses to comply with this", she said.

Even so, most states may look to pass bills similar to Washington state's, said Max Behlke of the National Conference of State Legislatures.

"[The] Supreme Court decision will harm America's innovators and small businesses. By permitting states to tax businesses outside of their borders, the Supreme Court's decision will usher in a new, unheralded period in interstate commerce", Jonathan Hauenschild, ALEC's counsel of record, said in a statement. "More concerning, it marks a departure from a constitutional understanding of federalism". "Congress remains the only solution to this threat".

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