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.
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.
I wonder how this ruling will affect websites like aliexpress that ship stuff only from China. I buy a TON of small electronics from there and would like to know how sales tax affects this.
I actually agree with this ruling and I buy lots of stuff online. Either tax or dont tax online and physical stores since the consumer is still getting a product either way..
I wonder how states will be able to enforce tax compliance on small retailers that do not exist in their state.
How is this supposed to work if you are a reseller and already paid taxes to your state? Say you buy an Ipad on black friday and through various stacks you get it at a good price so that you can flip it. Will you need to pay tax again if you are sending it to a different state?
As someone that works in sales tax implementing systems for large corporations… This will hurt the small and medium size business. HARD. Also the article linked is incorrect – the number of taxing jurisdictions is over 65,000… Thats across states, cities, counties, districts, transit authorities, parish’s…. list goes on and on. Companies pay us millions to implement and configure software that can handle the compliance of all of this.
You think small ecommerce retailers can handle that? Think again. The only likely solution is sellers will probably have to cave to things like selling on Amazon (who utilizes the software we implement) and charges a huge fee to the sellers to utilize it. Hope people realize, this doesn’t help B&M – this only hurts small/medium size eCommerce businesses.
maybe this will drive more transactions to craiglist. i look forward to showing up at a bank with a concealed carry weapon on me for all my sales in the future
“You may soak the rich, sock the poor, or milk the middleman, but however the tax collecting process is achieved the old, old cry will be heard:
Mister, mister, don’t tax me,
Tax the man behind the tree.”
Yummo more tax…
Can’t wait to see how Amazon & eBay implement the tax collection for sellers. No doubt with an increase in fees.
eBay already has a separate line item for taxes (which is required by law I believe). But you’re perceptive that PayPal fees will be charged on the entire amount, of course.
And I have been paying “Use tax” in my state for all internet purchases for all these years?
All of the loopholes are closing up for the little guys who were web savvy and able to connect the dots the past few years. Business-plan-by-DOC was killer 14′-17′, but the powers that be have finally caught up lol!!
Seriously, the no sales tax out of state thing (along with low USPS rates, which probably will change come January ) was probably the biggest key for a small time merchandise retailer to have an ecommerce business that could earn a full time living. It was a Big competitive advantage not having to charge 5-11% sales tax in 49/50 states.
It also helped the customer get a better deal, which along with the convenience of online shipping had a massive snowball effect leading to the “retail apocalypse” the media endlessly talks about today.
Online shopping has gotten so big that SCOTUS finally had to do something about it. I don’t blame them because at the end of the day the government/the big guy (aka Amazon Walmart and the like) always wins in America. aka big money talks and the small timers either join or get out the damn way. ‘Twas a nice ride while it lasted. Sort of dissapointed, also kind of proud to have been a part of something so impactful SCOTUS needed to intervene.
By “small time merchandise retailers” you mean all the Fleabay scalpers that bought up all deals and rebate items leaving none for locals to get any?
Exactly. And Don’t forget scamazon snipers..and the poshmark pimps.
Perhaps our local tax rates won’t have to keep climbing if everyone if forced to be honest and pay their sales tax. I have no false pretenses that sales taxes will go down, but hopefully not up as fast.
Haha, criticising others sales tax remittance practices on an arbitrage blog message board. Comical.
Next How bout we get into a moral debate about the ethics of ‘rebates’. Taxable or not taxable? What’s the true cost of an item, pre-rebate cost or post rebate cost? Seems like a lot of local tax revenue to go after there , could help keep local tax rates low if we went after some of these 20% ‘rebates’’ that seem to be floating across all industries these days, seems like the honest thing to do 😉
When has it been that rebates reduced the taxable amount? For example, when I took advantage of the MetroPCS “free iPhone SE for switching” promo, I still got dinged for sales tax on the phone’s un-discounted price.
Government officials voting for less money for their use and more for it’s citizens to keep for themselves and spend as necessary? Dreamland.