Posted by Chuck on June 21, 2018

Published on June 21st, 2018 | by Chuck


Supreme Court Gives States the Green Light to Charge Sales Tax on Internet Sales

The Supreme Court issued a ruling today allowing states to require sales tax for internet sales shipped to their state, even for companies that don’t have any physical footprint in the state. Justice Kennedy was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel A. Alito Jr. and Neil M. Gorsuch in the 5-4 majority opinion.

PDF link to ruling

The case was officially brought by South Dakota against online home good company Wayfair. Also mentioned in the decision are Newegg and Overstock. Online retailer’s stocks fell after the decision was issued.

Many internet companies pushed hard against the measure. Amazon, though, has already been charging and paying sales tax in all states on items sold by the retailer itself, but not for third-party vendor sellers.

Given the decision, it’s safe to assume that all states will soon enough begin requiring taxes for most internet sales shipped into their state. There has been concern, mentioned by Justice Roberts in a dissenting opinion, that this will be tough on small businesses, and it’s possible states will only require larger businesses to remit tax. From the dissent:

Over 10,000 jurisdictions levy sales taxes, each with “different tax rates, different rules governing tax-exempt goods and services, different product category definitions, and different standards for determining whether an out-of-state seller has a substantial presence” in the jurisdiction. Sales Taxes Report 3. A few examples: New Jersey knitters pay sales tax on yarn purchased for art projects, but not on yarn earmarked for sweaters…Texas taxes sales of plain deodorant at 6.25 percent but imposes no tax on deodorant with antiperspirant… Illinois categorizes Twix and Snickers bars—chocolate-and-caramel confections usually displayed side-by-side in the candy aisle—as food and candy, respectively (Twix have flour; Snickers don’t), and taxes them differently.

Regardless, this means some of our online purchases can be getting more expensive. Without getting into the legal nitty-gritty, it does seem overall fair that in our era there shouldn’t be a difference between physical stores and internet retailers. Even the dissenters noted that it should be worked on by congress as opposed to the court, but didn’t attack the idea itself. I also liked how this ruling was non-partisan – it seems everything runs on party lines these days.

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yes its all party lines…URs, SPGs, MRs

I prefer referral conga lines

Date URs, but marry an MR.

W, that was overtly racist. I’m going to implode right here where I sit.

Game changer in both the buy and sell side

This is going to be very, very bad for small businesses and especially individual sellers. Especially for states like New York where each individual municipality can impose sales tax on various items. It’s totally unreasonable for Joe Seller to have to register in and report to every sales tax jurisdiction in the country.

However, I think it might be the kick in the ass Congress needs to pass regulation to nationalize sales tax collection.

That’s what hopefully comes out of this, a National Internet Sales Tax. This will be an administrative nightmare otherwise.

Really bad for ebay. Bad for Newegg etsy and Wayfair. But of course good for Amazon since they’ve been charging tax on Prime already…what isn’t good for AMZ these days?

I doubt the lobbyists and retail associations for big B&M+Online retailers such as Amazon, Kohls, WM, Macys, Target, etc will allow that. They’re just as happy having it be too complex for those without their behemoth advantage.

Uhhh, so your response to states choosing to have a sales tax that is perceived as too burdensome on small businesses in their states is to nationalize it? not even sure what you mean by this as sales tax is a state revenue issue. some states consciously choose not to have sales tax because they want to raise revenue through alternative methods that they view as making them more competitive. some states choose to have high sales tax, some low, some none at all. im not really seeing the utility of your proposal and as someone from a no sales tax state, i would probably break into rebellion

If there was a flat internet tax nationwide it would at least be maneageable for the little guy to administer.

Remitting tax to all 50 states + jurisdictions is simply not manageable for a business under 1m in revenue. Death by the ‘administrative state’.

That is not how sales tax is levied in NY.

So again – I work in sales tax and I can tell you this simply won’t happen. Each jurisdiction has their own rules for sales tax down to the point of what rate, what product to tax, and (literally) their own rules for how to ROUND the sales tax. The federal government has no reason or means to tell the states how to tax or do it on their behalf. The reason?

Not every state has a sales tax first and foremost – 5 states in fact don’t have a sales tax (NH, OR, MT, AK, DE) – second, each have different rates. Some are as low as 3-5%, others are as high as 10-12% total.

Life is about to get a lot more expensive in the USA.

Indeed, higher interest, inflation, tariffs, sales tax. Nowhere to hide. Prepared food vendors started hiking prices 5-6% again this year after the big jumps in 2016.

This is going to be very bad for some retailers in niche markets. In the photography space, some retailers stay alive online because they market to NY buyers that they don’t have to pay sales tax (NYers have B&H and Adorama – two huge sellers – and paying $600 in tax is never fun). There are thousands of NY creators that buy from the places like Unique Photo (in NJ) because of this. It will be a shame if those retailers have to start doing layoffs because their online demand drops from this decision.
I’m not saying it is not fair (the decision), just that it will hit some businesses much harder than others.

They should have known they were filling a niche that wasn’t going to last forever. It was a temporary blip.

A 20+-years-long “temporary blip”.

In the grand scheme of things, online retailing is just now coming out of its infancy, so 20 years isn’t that long… BUT… you’d have to be living under a stone to not have seen this as an ever-changing landscape. To think it was never going to happen was dillusional. It was a wave you ride while you can.

The catalog business existed far longer.

Whether fun or not, NYers are required to pay that $600 in use tax anyway, so this will presumably reduce the tax cheating. It may also help a few B&M businesses who no longer get undercut by $600…

“Tax cheating” was already taken into account in budgeting, so now that states get more tax revenue with this ruling, will they reduce their sales tax rate to stay revenue neutral? Nooooope!

Wake up. This is an unvoted for tax hike.

Only a tax hike for tax cheats.

That’s a harsh way to look at it. The status quo allows these niche online sellers to stay alive to eat competing physical retailers (who have to pay taxes) alive. The ruling hits harder the businesses who have taken more advantage (i.e. cheated more), as it levels the playing field like a fair taxation system should.

It’s the buyers who ‘technically’ cheated. Sellers without a physical presence capitalized by not itemizing sales tax. Now those sellers are the ones who suffer, but cheating is probably the wrong way to label the seller because technically it was the buyers who cheated.

Unethical and against the U.S. Constitution to pay a tax to a State in which one has no representation (voting rights). This is a huge problem for normal businesses. Helps big sellers like amazon who can handle this mass of new tax rules to follow and implement – and damages EBAY in particular. Also – food is exempt in certain states.. are gift cards still exempt? So many fine details….

You do understand that sales tax is charged to the CONSUMER, not the seller, right? The seller is being held responsible for collecting the sales tax FOR THE CONSUMERS STATE on behalf of the consumer. This is not about representation. If you live in FL and buy something online from a NY merchant, you are not paying NY sales tax, you are paying FL sales tax.

As the business… you are collecting sales tax for another state on their behalf.

Sales taxes are a horrible infringement anyway – you are already taxed on income, double taxation when you spend that same money is further enforced theft.. but I digress.. just like earning interest on money already taxed (income) being taxed yet again is so very wrong. But governments (local, state, federal) will continue to take more and more in ever clever ways (tolls, fuel taxes, VAT taxes, licenses, permits) because that is what they do when the population allows it.

don’t forget inflation: triple taxation

And I thought the whole concept of “double taxation” was never supposed to happen… it happens on a much higher level than “double”

This will increase the rate of inflation. The cost of most shopping just went up 10%.

How is that even close to being true. Most places charge sales tax now. Who has 10 percent sales tax.?

The 10.25% sales tax rate in Santa Monica consists of 6.00% California state sales tax, 0.25% Los Angeles County sales tax, 1.00% Santa Monica tax and 3.00% Special tax.

Cook county IL has 10.25%. To Anybody out of state selling to Chicago, chew on that one!

Think of all the honest people in Chicago that won’t have to pay the online sales tax via their tax forms. It will surely simplify their lives, because I am sure they were all honest and paying those sales taxes they owed.

don’t forget corporate tax…four layers!

Not all states tax income (Texas, for example).

well the seller is being conscripted to work as tax collector for another state, though I guess it evens out since the seller’s state is getting the same service from out-of-state sellers…unless the seller is in a state with no sales tax and has to create a whole tax collection process just for other states, which makes you wonder if a tax-free state could pass a law banning collection

Are they being forced to sell their products into all those states? This law must be much more cumbersome than I thought. /s

It’s the consumer that is paying the sales tax (to their state of residence) the businesses will now just be required to collect the remit the tax to those states; again, the business isn’t “taxed” by another state, they’re merely going to be required to collect and remit the tax as applicable to their consumers. If a business doesn’t want to deal with onerous states, they could opt not to sell to customers residing in those states.

I agree, but I think the solution should be that merchants should pay sales taxes to their home states, and pass that charge down to the consumer. Consumers are uniquely suited to choose whether or not they want to transact with a foreign business; the same way they can choose whether or not to visit another state and pay sales taxes there. The sales tax on an item shipped from Seattle shouldn’t be any different than if I had bought it in Seattle myself.

Yes, that would be a much simpler system.

Nexus is going to be a bizatch to the average joe seller

You’re supposed to be paying taxes on things anyway even though the site doesn’t collect for the state.

How am I as an ebay seller supposed to know all of the immense web of tax laws throughout the USA? Or as a small business etc… and to implement and afford a payment solution that can deal with that while still maintaining a profitable business…. it’s bigger than ‘pay your taxes’… it’s a quagmire.

It’s a cost of doing business. It’s why businesses regularly exclude residents of certain states from products or sales etc. No one is forcing you to sell in a state in which you don’t want to uphold a law.

I am sure there is software out there that will handle the calculations for you.

Big winners in this are accountants and bookkeepers. Tax prep software too. Shopify has a solution for this too

yea, one of them just IPO’d…Avalara

and government is supposed to serve taxpayers instead of just stealing all the money, so we’ll call it even

It is their money to begin with.

Um….what? Kim Jong-Un, is that you? I thought you were with Dennis Rodman…

That would be the problem with governments.. Governments think of it as ‘their’ money.. it’s our money that we are forced to give to them because we allow officials to take it and pass more laws enriching the Government and taking money from ourselves… Frogger… I hope that comment of yours was sarcastic…..

The money that you are talking about is a US Federal Reserve note. There is no value to the “money” by itself. It’s just paper. The value is determined by the trust and backing of the US Government. Without the backing of the US Government, the money has no value.

So as much as you like to say “your money”, realize that you are trading worthless paper for goods based off of the trust that the Fed and Gov continue to back that paper as having value. Thus the statement “it’s their money to begin with”.

This is partially why crypto currency is such a fad right now since it’s a currency where the value is determined by mutual consensus, not government backing, but that’s a different topic. You can continue to believe that if the US Government defaults that you will be okay as long as you have “your money”. Look how well that worked for Zimbabwe and Venezuela.

No you’re (the seller) not. The buyer is supposed to be claiming purchase of out of state items on their state income tax return to be charged a use tax for bringing products across state borders. That onus is (was) 100% on the buyer.

In one article I saw about this earlier today, it said 90% of potentially-taxable online sales come from the top 100 online retailers. So IMO there needs to be a sales volume threshold (so only sellers above that volume have to participate), comparable to what the current volume is at #100 of the top 100, and leave the millions of small-time online businesses out of having to deal with 12,000 sales tax jurisdictions!

The South Carolina law actually does have a threshold, however, each state is going to have a different threshold, which can get even more confusing.

What time will this become effective? How much legislation process will need to go through?

It directly favors big companies like Amazon and will probably destroy small business on eBay.

a little cringy to watch people complain about taxes when they elect local govmts that levy them.

Last time I checked, the Constitution forbids Federal Government to regulate interstate commerce. By the Supreme Court deciding one state can tax commerce from another state, that sounds like regulating interstate commerce to me.

The Constitution grants Congress the power “[t]o regulate
Commerce . . . among the several States.” Art. I, §8,
cl. 3. The Commerce Clause “reflect[s] a central concern of
the Framers that was an immediate reason for calling the
Constitutional Convention: the conviction that in order to
succeed, the new Union would have to avoid the tendencies
toward economic Balkanization that had plagued
relations among the Colonies and later among the States
under the Articles of Confederation.” Hughes v. Oklahoma,
441 U. S. 322, 325–326 (1979).

The Constitution doesn’t say that. It says that *only* the Feds can do this.

“The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;”

please read the clause.

Did you mean to reply to Orin? Your reply was to me, and I’m pretty sure that we agree. 😉

I know it was unnecessary but my reply was to Orin.

Regulating interstate commerce is one of the federal government’s greatest powers–pretty much how it regulates everything it does.

That’s why there should be a national VAT to cover everything. It hides the taxes on your purchase.

No, there shouldn’t be a VAT. Not here, not anywhere. The reason? As you said, it hides your taxes. No, I think I’d like to see how much of the price is tax, or at least as much as I can now.

How does it hide anything? Any such legally mandated numbers are public and would be found at the top search result on Google. Maybe you need to do some mental math to figure out how much 8% of your purchase is but that’s not hiding.

That is why income taxes and FICA are taken out before W2 employees receive their paycheck.. obscures taxes a bit… shine a light on the immense percentage forcibly taken from US Citizens in so many ways (taxation on nearly everything). VAT is an awful idea.

Very interesting to see a 5-4 decision with Justice Ginsburg joining Justices Alito and Thomas! Never thought I would see that happen. It really is a shame that taxes are just too high and out of control. All of these are taxable: income (federal and state), property, purchases, payroll, social security, medicare, business profits, gas, cigarettes, alcohol, and there’s plenty more!

All of that being said, logically it does make sense that one company shouldn’t have a competitive edge over everyone else by not having to charge sales tax. However, the real solution would be to wipe out the taxes for everyone instead of raising the taxes for everyone! That is congress’s job and not the court’s job though.

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