Supreme Court Ruling Allows States To Collect Online Sales Tax

- Jun 22, 2018-

The U.S. Supreme Court ruled Thursday that states can collect sales tax from online retailers, ending a years’ long debate over the issue.

The 5-4 decision overturns an earlier ruling, the 1992 decision in Quill Corporation v. North Dakota, which prohibited states from collecting and remitting sales or use taxes on purchases made through online sellers, if the seller does not have a physical presence in the state.

The reversal opens the door for states to now collect tens of billions of dollars in tax revenues brought on by the rise in e-commerce. The justices did not specify what types of exceptions states may impose to limit the burden on small businesses.

Justice Anthony Kennedy was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch in swaying the vote in favor of the states.

“The Internet’s prevalence and power have changed the dynamics of the national economy,” Kennedy wrote. "This expansion has also increased the revenue shortfall faced by states seeking to collect their sales and use taxes."

Brick-and-mortar businesses have long complained that the ruling puts them at a disadvantage because their online competitors do not have to charge tax, often resulting in lower prices.

A more recent case, South Dakota v. Wayfair, challenged the earlier decision. South Dakota passed a law requiring all merchants to collect a 4.5 percent sales tax if they had more than $100,000 in annual sales or more than 200 individual transactions in the state. State officials sued three large online retailers — Wayfair, and Newegg — for violating the law.

The American Lighting Association, the National Retail Federation, attorneys general from 36 states and other organizations filed amicus briefs in support of the case.

Wayfair, Overstock and Newegg were among companies who filed briefs in opposition, arguing that the high court should leave matters of legislation up to state legislators.