You’re About to Pay Higher Online Taxes After Supreme Court Ruling

Yuri Gripas  Reuters

Yuri Gripas Reuters

For example, South Dakota, like MA, creates a minimum threshold so only someone doing a large amount of business in the state has to collect taxes.

Consumers can expect to see sales tax charged on more online purchases - likely over the next year and potentially before the Christmas shopping season - as states and retailers react to the court's decision, said one attorney involved in the case.

The 5-4 vote overturns the 1992 Quill versus North Dakota ruling that a company needed a physical presence in the state to be taxed.

Thursday's decision came after South Dakota passed a law in 2016 compelling remote retailers to collect sales taxes and then sued several merchants to pay up.

States have not been able to collect taxes on online transactions unless a business had a physical presence in the state.

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The National Retail Federation trade group has hailed the Supreme Court's sales tax decision as a "major victory".

"That has meant about $300 million in lost revenue every year, including $160 million for the state, $112 million for cities and $24 million for counties", Neal said. The court found the standard doesn't jibe with current-day online retailing.

The court held that its prior "physical presence rule" was "unsound and incorrect" and so prior decisions from 1967 and 1992 were both overruled.

The exact impact of the ruling on Florida's sales tax collections is unknown but it could be significant.

Businesses that sell through marketplace websites, such as third-party sellers on Amazon, and store inventory in the state at the time of the sale are also required to collect sales tax, according to the Illinois Department of Revenue.

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The Supreme Court of the United States ruled Thursday that online retailers can add state tax to their sales, even if they do not have a physical location in that state. Most other major online retailers have followed suit, simply because it's become cheaper for them to collect the tax and majority have a "physical presence" in much of the country anyway, as fulfillment centers are popping up everywhere.

The online stores have contended that charging sales tax would be "burdensome" for small- to mid-sized shops. In 2014, Amazon, the largest online retailer, began collecting the tax in Florida after it opened a series of "fulfillment centers" in the state. Some states that lack a broad sales tax, including New Hampshire, Montana and Washington, had submitted arguments to the court taking the opposite position.

Justices Anthony Kennedy, Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito, and Neil Gorsuch delivered the opinion while John Roberts, Stephen Breyer, Sonja Sotomayor, and Elena Kagan dissented. South Dakota's governor has said his state loses out on an estimated $50 million a year in sales tax that doesn't get collected by out-of-state sellers. They argue tax-collection software makes it easier for retailers big and small to comply with their tax obligations, which vary widely from state to state, and product to product.

The case is South Dakota v. Wayfair, 17-494.

Internet companies opposed to the South Dakota law appealed.

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