Supreme Court Rules States Can Charge Online Shoppers Sales Tax

States stand to pocket billions as Supreme Court rules internet businesses must collect sales taxes

The U.S. Supreme Court in Washington

Online shopping sales have grown steadily for the past decade, but when it comes to sales tax, things get tricky.

Five states - Delaware, Montana, Oregon, New Hampshire, and Alaska - do not have a state sales 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. States and municipalities stand to gain billions of dollars in annual revenue.

It is also unclear, according to Montana Department of Revenue Officials, if the court's ruling could mean that Montana's resort communities which have adopted a local option sales tax will have to start imposing those taxes on their online sales. He said the legislation would be tailored to fit within the Supreme Court ruling.

That decision did allow for the then-nascent e-commerce industry to grow in the early days of the internet, but Justice Anthony Kennedy wrote in the majority opinion that it was now outdated. Some retail leaders like former Office Depot CEO Steve Odland said the decision could raise prices for consumers by increasing sales taxes. If a business had a physical presence in a state, then they could be forced to collect sales tax at the time of purchase. That's because they typically have a physical store in whatever state the purchase is being shipped to.

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But when and if that happens depends on the state: Some may pass laws quickly, others can take years and some states, like the ones that don't have a sales tax, may choose not to require it, says Mr. Bishop-Henchman. Today, the retail giant collects taxes in every state that has a sales tax. Other retailers-including Etsy, eBay, and Wayfair-are also seeing huge stock dips. The Supreme Court sided with South Dakota 5-4, overturning a previous ruling, Quill Corporation v.

The Supreme Court rejected a challenge to that law, overturning a 1992 Supreme Court decision that established the physical presence requirement. North Dakota, that said companies can not be forced to collect sales tax from customers in a state where they don't have a physical presence like a store or distribution center. It required out of state retailers with more than $100,000 in SD sales to collect sales tax.

The Supreme Court said the physical presence rule was "unsound and incorrect".

"This is a great day for South Dakota".

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