Supreme Court rules states can force online retailers to collect sales tax

Otis Hoffman
June 21, 2018

The 5-4 decision defied the usual conservative-liberal lineup with Kennedy joined by liberal Justice Ruth Bader Ginsberg, and conservatives Samuel Alito, Neil Gorsuch and Clarence Thomas.

Amazon and eBay's third-party vendors, for example, are often cited as an example of small retailers that could suffer from changes to the tax structure.

With this ruling look for more states and local governments to push for taxes on online physical and digital sales. This decision overturned a 1992 ruling, which allowed these platforms to use the internet as a tax-free haven.

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Justice Anthony Kennedy wrote that the physical presence rule "each year. becomes further removed from economic reality and results in significant revenue losses to the states".

States have argued that they are missing out on a serious chunk of revenue, while brick-and-mortar retailers say they are at a disadvantage compared with e-commerce companies because they have to charge sales tax at the time of purchase. That's because they typically have a physical store in whatever state the purchase is being shipped to. It also provides sellers access to sales tax administration software paid for by the State.

Wayfair (W), Etsy (ETSY) and eBay (EBAY) all dipped in early trading Thursday immediately following the ruling. South Dakota's governor has said his state loses out on an estimated $50m a year in sales tax that doesn't get collected by out-of-state sellers.

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President Donald Trump has also criticized Amazon, whose founder Jeff Bezos also owns the Washington Post, saying that it does not collect any sales tax.

On June 4, the last day of the special second session, Louisiana legislators rushed through a bill that used the same wording as a South Dakota law that was the subject to the constitutional challenge in the high court.

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

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