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States can now force you to pay online sales tax

21 June 2018

North Dakota from 1992, which set the property or employees standard for sales taxes using the Court's (debated) dormant commerce clause power to restrict state taxation of interstate commerce.

The US Supreme Court on Thursday gave states the ability to require online and out-of-state retailers to collect and send them state sales taxes.

The ruling overturned a 1992 Supreme Court precedent and potentially paves the way for consumers to pay more for their online purchases. Customers in most cases are supposed to pay the tax themselves, but both sides of the debate admit few actually do.

Justice Anthony Kennedy wrote that the previous decisions were flawed.

"Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States". Brick-and-mortar retailers have argued that online retailers have an unfair advantage.

As an example, lawyers for the online retailers told the high court that in IL, a Snickers bar costs more in taxes than a Twix bar, since food items containing flour are not treated as candy for tax purposes.

South Dakota has estimated that it could take in up to $50 million a year in additional revenue with these taxes being collected.

Amazon, which was not involved in the Supreme Court case, collects sales taxes on direct purchases on its site but does not typically collect taxes for merchandise sold on its platform by third-party venders, representing about half of total sales.

The high court has said for more than 50 years in various rulings that states can not collect taxes from sellers without a "physical presence" in those states.

It passed a law requiring retailers with more than $100,000 in annual sales or 200 transactions in the state to pay a 4.5 percent tax.

South Dakota wanted out-of-state retailers to begin collecting the tax and sued several of them: Overstock.com, electronics retailer Newegg and home goods company Wayfair.

The Trump administration had urged the justices to side with South Dakota.

The case is South Dakota v. Wayfair.

States can now force you to pay online sales tax