Supreme Court Rules States Can Charge Online Shoppers Sales Tax

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But Thursday morning the U.S. Supreme Court ruled that mode of thinking is outdated and unfair, and decided that states can impose sales taxes on all online sales, based on where the product is being shipped.

Lower courts ruled against the state's law, following the physical presence precedent.

The online stores have contended that charging sales tax would be "burdensome" for small- to mid-sized shops. As the justices acknowledged Thursday, however, the court back then "could not have envisioned" a world in which e-commerce sales have revolutionized the dynamics of the national economy.

Writing the majority opinion, Kennedy called the previous ruling in Quill "flawed" and "removed from economic reality".

In recent years, brick-and-mortar retailers, including bike retailers, had supported federal legislation that would create a nationwide system to collect state taxes. The court justices include: (seated, from left): Associate Justices Ruth Bader Ginsburg and Anthony M. Kennedy, Chief Justice of the U.S. John G. Roberts, Associate Justices Clarence Thomas and Stephen Breyer.

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The evidence of that can be found in a staggering statistic cited in Justice Kennedy's majority opinion.

"Any adjustment to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress", Roberts wrote in a dissent joined by Justices Stephen Breyer, Elena Kagan and Sonia Sotomayor. Any adjustment to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress.

"The Court should not act on this important question of current economic policy, exclusively to expiate a mistake it made over 50 years ago", he said. Three large online vendors, Wayfair, Newegg, and Overstock, challenged the law in court, and lost on Thursday.

"This is a great day for South Dakota".

Castro said she was "quite content" with the court's decision, calling it a "huge win for our small businesses who really struggled to compete". "It's going to revive Main Street South Dakota and Main Street America".

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Dominic Calabro, president of Florida TaxWatch, a business-oriented advocacy group, said the ability to apply the sales tax to more internet sales will keep the state's tax structure in sync with the evolving economy. For others, it also included the added bonus of not having to pay sales tax from select merchants.

Washington, which doesn't tax personal income or capital gains, depends heavily on sales-tax revenues to help fund government services. That is likely to change now.

But the practical effect in MA may be more about providing clarity than gaining any substantial new revenue, since MA already started collecting taxes from online sales previous year - despite a lawsuit challenging those collections. Most brick-and-mortar retailers are familiar with "customers" who come in with their smartphones to look at goods they have no intention of buying from the local business. But Congress, buffeted by anti-tax groups, has walked away from the issue.

The cases the court overturned said that if a business was shipping a customer's purchase to a state where the business didn't have a physical presence such as a warehouse or office, the business didn't have to collect the state's sales tax. These states also have access to software for sellers under the agreement which automatically collects and remits sales taxes for every sale in a state.

Brick-and-mortar retailers in Florida and other states have long complained that allowing some online retailers to evade sales taxes creates a competitive advantage for the remote sellers. "Here in California, we already pay sales taxes on Amazon transactions".

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It's unlikely the court ruling will halt the rapid ascent of ecommerce, which was fueled in part by the 1992 decision. And the court didn't say whether states could retroactively seek sales taxes. "That was the best case scenario ever - not in a million years did I think they'd wipe the slate clean".

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