Published: Tue, April 17, 2018
Economy | By

How a Supreme Court case could affect your online purchases

How a Supreme Court case could affect your online purchases

The U.S. Supreme Court decision controlling this issue, Quill Corp v. Instead, the state argues that a sales tax should be imposed on businesses who have an "economic presence" in a state. For example, marketplace facilitator laws require marketplaces to collect the appropriate sales tax, taking the sales tax collection responsibility out of the hands of retailers and ensuring tax collection even if the retailers are not involved.

Online retailers that want to face the future with confidence - and ensure their ability to focus on satisfying the needs of customers - should immediately develop a reliable strategy for tracking evolving sales tax regulations, assessing their impact on their businesses, and automating sales tax compliance.

The Supreme Court has addressed this issue over the years, eventually ruling that merchants with a physical presence in a state must collect that state's sales tax when selling to a resident of the state.

In four other states where the case is expected to have less impact, sales tax revenue accounts for less than 20% of their overall tax revenue - Vermont (12%), NY (16.8%), Virginia (18.5%) and the District of Columbia (18.5%).

This legal challenge involves South Dakota as well as Wayfair, Overstock and other popular online retailers. The court is finally revisiting its Quill decision, a 1992 ruling from the era of printed catalogs that requires retailers to collect sales taxes only in states where they have a physical presence.


More than 40 states are asking the Supreme Court to reconsider that rule in a case being argued Tuesday. A total of 35 other states have weighed in on South Dakota's side. A lawyer representing those companies - George Isaacson - says the state law in question hurts innovation. "The internet now makes it possible for out-of-state sellers to reach consumers with engaging, interactive virtual storefronts in our homes or on our smartphones at any hour of the day".

But states have found that few people comply. But a case before the Supreme Court could change that. South Dakota's governor has said the state loses out on an estimated $50 million a year in sales tax that doesn't get collected by out-of-state sellers.

Although Alaska does not have a state sales tax, there are 107 jurisdictions in the state that levy sales taxes, including the city of Juneau.

Supporters say online businesses can undercut prices by not charging the tax - driving customers to the Internet. That leaves out only Alaska, Delaware, Montana, New Hampshire and Oregon. "State and local interests could also diverge where the pass-through of sales tax revenues is subject to state discretion". They say they're losing out on "billions of dollars in tax revenue each year, requiring cuts to critical government programs" and that their losses compound as online shopping grows. But the General Accounting Office estimates that the number would be at most about $13 billion. The court first adopted its physical presence rule on sales tax collection in a 1967 case dealing with a catalog retailer.

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