Supreme Court Rules States Can Collect Sales Tax from Online Retailers

Sales Tax Online
Text Size
- +

Toggle Dark Mode

In a closely divided vote, the U.S. Supreme Court ruled Thursday that states can begin collecting sales taxes from online retailers.

The 5-4 decision on the case of South Dakota v. Wayfair Inc. overturns a previous 1992 ruling. That ruling prevented states from collecting tax on firms that did not have a physical presence in the state.

According to Bloomberg, the state’s broader authority to collect sales tax could bring in an extra $8 to $23 billion a year in revenue.

The decision will mostly impact firms that have skirted by the looser tax restrictions, including Newegg, Wayfair and

Amazon, the largest online retailer in the U.S., already collects sales tax in the 45 states that require firms to do so. On the other hand, Amazon only collects tax on items from its own inventory — meaning that third-party sellers on the platform might be subject to the new ruling.

Chief Justice Anthony Kennedy, who wrote for the ruling, said that the previous Supreme Court decision was becoming obsolete in the new era of e-commerce. “The Internet’s prevalence and power have changed the dynamics of the national economy,” Kennedy wrote.

Among the dissenting votes, Chief Justice John Roberts said that the burden of the ruling will fall “disproportionately on small businesses,” which could reduce their opportunity to compete in online marketplaces.

USA Today points out that the “ultimate impact” of today’s decision will remain in doubt. Several lawyers told the publication that future lawsuits may dictate what retailers and buyers will need to do to comply with the ruling.

Of course, the ruling really only applies to South Dakota — and Bloomberg notes that it isn’t necessarily a “green light” for other states.

In the wake of the ruling, online marketplaces like eBay, are pushing to federal legislation that will provide “clear tax rules” and exemptions for small businesses and retailers.

Social Sharing