U.S. Supreme Court rules states can require online retailers to collect sales tax

“Online shopping will soon become more expensive after the U.S. Supreme court ruled Thursday that states can require internet retailers to collect sales taxes,” Pete Williams reports for NBC News. “The 5-4 decision broke with 50 years’ worth of legal rulings that barred states from imposing sales taxes on most purchases their residents make from out-of-state retailers.”

“The decision was a victory for South Dakota, which had asked the court to uphold its recently passed law imposing an internet sales tax,” Williams reports. “‘The Supreme Court applied bacon grease to the slippery slope of states taxing and regulating outside their borders,’ said Andrew Moylan, executive vice president of the conservative National Taxpayers Union Foundation and head of its Interstate Commerce Initiative. ‘By validating South Dakota’s law, the Court has granted states the power to tax any business anywhere in the country simply for daring to use the internet to access a nationwide market,’ he added. ‘Congress must now act to contain the fallout of this case.'”

“Chief Justice John Roberts, in the dissenting opinion, said the internet economy has thrived under the sales tax exemptions,” Williams reports. “‘Any alternation to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress,’ he wrote.”

Read more in the full article here.

MacDailyNews Take: The majority consisted of Justices Anthony M. Kennedy, Clarence Thomas, Ruth Bader Ginsburg, Samuel A. Alito Jr., and Neil M. Gorsuch. There’s a mix. Here’s another one: The minority consisted of Chief Justice John G. Roberts Jr. and Justices Stephen G. Breyer, Sonia Sotomayor and Elena Kagan.

The ball’s in your court, Congress!

37 Comments

    1. fully agree. And the write-up is misleading. The issue of paying sales tax was always on the books. The question was one of collection. Congress passed a law that enable online sellers to not collect a sales tax; the buyers though still had to pay it. Since most on-line shoppers do not “pay” the sales tax that they are supposed to be law, this ruling just means that online sellers will now need collect and submit sales tax.

  1. It is just the same protectionistic logic as the one which induces your dear president to bring to a harsh end long-standing free trade agreements with friend and foe alike as a sacrifice to pathological and highly damaging and dangerous ‘me first’-hybris.
    It’s just shameful. After all the recent upsetting news I wouldn’t even be surprised if he decided to switch off the internet completely too one of these days – by his favorite means of one more undemocratic executive order.

    Guido Hick, Belgium, EU

    1. While I do not agree with the President’s attacks on our close allies, or, in general, with protectionism and the shape and direction of the President’s policies, I do think the sales tax issue does not fall under protectionism. Speaking to people in Canada, the requirement of merchants to collect sales taxes for items shipped to other provinces was put in place many years ago. Before that I know that local businesses lost a lot of sales to out-of-province suppliers because of what was essentially a large discount formed by not collecting provincial taxes. Canada’s sales taxes are quite high – now many provinces have a rate (combined federal and provincial tax, or HST) of 15%. I am not sure how much it was back then, but assuming they online or catalog supplier had to collect federal tax, their final price was likely 7 or 8% cheaper due to no provincial tax. If someone was buying more expensive items (technology or machinery, for example), this could be substantial. It was an unfair, unlevel playing field for smaller, local businesses against the large suppliers in other provinces.

        1. As has been clarified by TxUser and Runcat, we always had the obligation to pay sales tax in the state of use.

          As far as interstate taxation goes…. if it’s produced in one state, but sold in a store in another, isn’t that interstate taxation?

  2. This will probably forced online retailers to offer some sort of free shipping. Not talking about 14 day delivery free, but more like amazon does with Prime. Otherwise, why pay for tax and shipping?

  3. “The 5-4 decision broke with 50 years’ worth of legal rulings that barred states from imposing sales taxes on most purchases their residents make from out-of-state retailers.”
    Wrong. The purchaser always had to pay a sales (or use) tax; most didn’t. The 50 year precedent, which was originally put into place for catalog sales, was put into place by Congress to include internet-based sales as well, with caveats about having a “presence” in the state. This change just means that internet sellers will have to collect that sales tax rather than relying on the honesty of purchasers to pay it. For companies, such as Best Buy and Barnes&Noble, this will have no affect since they already had to collect and pay those taxes for online sales. This will dramatically affect Amazon and other companies that do not generally collect sales tax.

    1. Festarius,

      You don’t owe any NY taxes. That hasn’t changed. Sales tax, as opposed to value added tax, is imposed on the buyer, not the seller. That’s why the posted price of an item includes VAT but not sales tax. The taxes are intended to offset the cost of providing government services to the taxpayer (not the merchant).

      You were always supposed to pay California sales tax, but nobody ever did unless the merchant collected it. Under prior precedent, the merchant could only be required to collect the tax if the merchant had a physical presence in the buyer’s state. This ruling says that a state may now require an online merchant to collect it in all cases. So B&H in New York can be forced to collect the relevant state and local taxes from a California buyer and transmit them to the appropriate authority. I don’t know if California law requires that, but it likely does.

      1. I think that the sales tax is imposed on the merchant to pay it. Just because the merchant adds sales tax on a product does not mean that the buyer is compelled by law to pay it. The compunction comes into play when the merchant says, “No pay tax, no get goods.”

        1. You may think it, but that does not make it true. Sales taxes are, by definition, imposed on the buyer, who is compelled by law to pay it. The merchant is only compelled to collect the tax, and cannot legally sell the product without doing so.

          1. States legally require businesses, not the customer, to pay the sales taxes to the state. If the sale is between private parties, on the other hand, the buyer is legally compelled to pay a tax.

          2. States differ. In Texas, the burden is always on the buyer. In California, the sales tax for in-state transactions is paid by the seller, while the equivalent use tax on cross-state transactions are on the buyer (but collected by the seller). There are 48 other states with their own patterns. Federalism at work.

  4. This could backfire for brick and mortar though; now there won’t be a guilt hesitation for some people to order online vs shopping locally since taxes will get collected either way.

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