Supreme Court lets states force online retailers to
collect sales tax
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[June 22, 2018]
By Lawrence Hurley
WASHINGTON (Reuters) - States may force
online retailers to collect potentially billions of dollars in sales
taxes, the U.S. Supreme Court said in a major ruling on Thursday that
undercut an advantage many e-commerce companies have enjoyed over
brick-and-mortar rivals.
In a 5-4 ruling reviving a South Dakota law challenged by Wayfair Inc,
Overstock.com Inc and Newegg Inc, the justices overturned a 1992 high
court precedent that had barred states from requiring businesses with no
"physical presence" there, like out-of-state online retailers, to
collect sales taxes.
Shares of online retailers fell following the ruling, which opened the
door to a new revenue stream to fill state coffers - up to $13 billion
annually, according to a federal report.
"Big Supreme Court win on internet sales tax - about time!" President
Donald Trump, who has bashed online retail powerhouse Amazon.com Inc and
whose administration backed South Dakota, said on Twitter. "Big victory
for fairness and for our country. Great victory for consumers and
retailers."
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The ruling likely will result in many consumers paying more for online
purchases. 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.
South Dakota's law, enacted in 2016, focused on larger out-of-state
e-commerce companies, requiring them to collect sales tax if they amass
$100,000 in sales or 200 separate transactions. Other states are now
expected to pursue sales tax on out-of-state online purchases, with more
legal fights likely. Forty-five of the 50 states have sales taxes.
Overstock closed down 7.2 percent and Wayfair dropped 1.6 percent,
though both said the ruling would have no major impact on their
businesses. Amazon shares closed down 1.1 percent.
Amazon, which was not involved in the Supreme Court case, collects sales
taxes on direct purchases from its site but does not typically collect
taxes for merchandise sold on its platform by third-party vendors,
representing about half of total sales. The ruling means states may now
seek to tax more of those sales, Moody's analyst Charlie O'Shea said.
Trump has blasted Amazon CEO Jeff Bezos, who also owns the Washington
Post, a newspaper that the Republican president has disparaged for its
coverage of him.
Liberal Ruth Bader Ginsburg joined four conservative justices in the
majority in the ruling authored by Justice Anthony Kennedy, while
conservative Chief Justice John Roberts joined the court's three other
liberals in dissent.
"Rejecting the physical presence rule is necessary to ensure that
artificial competitive advantages are not created by this court's
precedents," Kennedy said.
In the digital era, the costs of complying with different tax regimes
"are largely unrelated to whether a company happens to have a physical
presence in a state," Kennedy wrote.
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![](../images/062218pics/busine27.jpg)
U.S. Supreme Court is seen in Washington, U.S. April 24, 2018.
REUTERS/Yuri Gripas
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'DEFEND MAIN STREET'
"This is a great day for South Dakota. We have long fought the battle to defend
Main Street businesses and now with today's ruling, all businesses will compete
on a level playing field," South Dakota Republican Governor Dennis Daugaard
said.
Roberts, in dissent, said e-commerce has exploded in the United States in part
because there have been uniform rules.
"Any alteration of those rules with the potential to disrupt the development of
such a critical segment of the economy should be undertaken by Congress,"
Roberts added.
Democratic U.S. Senator Heidi Heitkamp of North Dakota was on the losing side in
1992 when she was that state's tax commissioner in the ruling that was
overturned on Thursday. Heitkamp suggested that states follow South Dakota's
lead and enact laws tailored not to target small businesses.
"It's important that you look at what the court said about it not being a blank
check for the states. That should be a message to the states," Heitkamp told
Reuters.
Shares of eBay Inc and Etsy Inc, which both provide platforms for small
retailers to sell their wares, were off 3.2 percent and 1.4 percent,
respectively.
Shares of major retailers that have a sizeable presence online as well operating
brick-and-mortar stores responded positively. Target Corp closed up 1 percent
and Walmart Inc was up 0.7 percent.
The South Dakota law and others like it could yet face legal challenges on other
grounds. Congress could also intervene to set a nationwide standard.
"You will certainly see, absent congressional action, significant litigation, as
states try to push the envelope on this," said Mike Dabbs, senior director of
government relations at eBay, which had backed Wayfair.
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Jeffrey LeSage, Americas vice chairman for tax at accounting firm KPMG, said the
ruling "could turn out to be almost as significant for American businesses as
the recent rewrite of the U.S. federal tax code."
The win was welcomed by groups representing brick-and-mortar retailers and
decried by e-commerce advocates.
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.
On the other hand, small internet businesses will lose out because of the
increased compliance costs, said Chris Cox, a lawyer for e-commerce industry
group NetChoice.
(Reporting by Lawrence Hurley; Additional reporting by Jeff Mason, April Joyner
and Caroline Valetkevitch; Editing by Will Dunham)
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