US Supreme Court ruling enables states to collect sales tax from more online vendors

(Image: © Pixabay via Simon)

Online shopping might be getting a bit more expensive in the US. In a 5-4 decision, the Supreme Court on Thursday overturned a 1992 Supreme Court ruling that prevented states from collecting sales tax from online vendors if they did not have a "brick and mortar" location in that particular state, CNET reports.

This has been a point of contention between states and online retailers for a long time. Up until today's ruling, online vendors without a physical presence in a state, such as an office or a warehouse, were not required to pay any sales tax when a resident bought something. The burden fell on the consumer to report their online purchases when filing taxes.

This led to an interesting scenario a few months ago when Connecticut's Department of Revenue Services (DRS) sent some Newegg customers an unexpected tax bill. Typically states would focus their efforts on online vendors and not the customers, but with today's ruling, it becomes moot.

As part of the decision, Justice Anthony Kennedy, who wrote for the majority, pointed out how much the landscape has chanced since 1992. Mail order sales back then tallied $180 billion

"Last year, ecommerce retail sales alone were estimated at $453.5 billion," he wrote. "Combined with traditional remote sellers, the total exceeds half a trillion dollars."

The matter reached the Supreme Court after South Dakota in 2016 passed a law requiring out-of-state sellers to collect and remit sales taxes, provided the total sales exceeded $100,000 or at least 200 transactions. After doing so, it filed a lawsuit against Newegg, Overstock.com, and Wayfair to validate the law. The state argued it was losing between $48 million and $58 million per year in uncollected sales tax, and the issue ended up in the Supreme Court.

Retailers with physical storefronts celebrated the decision, as did the National Retail Federation, a trade group comprised of some of the biggest brick-and-mortar retailers in the US.

"This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store, or both," Matthew Shay, federation president and CEO, said in a statement.

What this ultimately means for consumers is that online purchases could potentially become more expensive. That won't necessarily be the case at Amazon, the world's largest online retailer, which already collects sales tax in every state that has such a tax. The exception is when buying from a third-party seller that sells goods on Amazon.

Not everyone celebrated the ruling, though. Chief Justice John Roberts dissented, saying Congress should be the one to decide on the issue.

"Ecommerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule. Any alteration 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, solely to expiate a mistake it made over 50 years ago," Roberts said.

You can read the lengthy decision here (PDF).