Jun 21, 2018
Supreme Court rules online retailers must pay sales tax

In a landmark decision for retailers and consumers around the country, the U.S. Supreme Court ruled Thursday, June 21 that states can require online retailers to collect sales tax.

The vote in the case of South Dakota v. Wayfair was close, 5-4, with Justices Alito, Ginsberg, Gorsuch, Kennedy and Thomas voting in favor of South Dakota, which sued Wayfair Inc. and two other online-only retailers. Chief Justice Roberts and Justices Breyer, Kagan and Sotomayor dissented.

The ruling overturns a 26-year-old precedent stemming from the case of Quill v. North Dakota that stated retailers that do not have a physical presence in a state or location do not have to collect sales tax on purchases. That case involved mail order catalogs.

“A virtual showroom can show far more inventory, in far more detail, and with greater opportunities for consumer and seller interaction than might be possible for local stores,” Justice Kennedy wrote in the decision. “Yet the continuous and pervasive virtual presence of retailers today is, under Quill simply irrelevant. This court should not maintain a rule that ignores these substantial virtual connections to the state.”

Chief Justice Roberts penned the dissent, stating it was not the role of the court to change the rule, but that of congress.

“E-commerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule,” Roberts wrote. “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.”

The defense also pushed for congressional intervention, should any be required, arguing that there are 12,000 taxing jurisdictions nationwide. Forty-five states have sales tax laws, although many cities and other designated areas have additional sales tax stipulations.

The National Retail Federation lauded the decision.

“Retailers have been waiting for this day for more than two decades,” said National Retail Federation President Matthew Shay in a statement. “The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well.”

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