Supreme Court Rules States Can Require Sales Tax for Online Purchases

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

In a 5-4 decision, the court overturned decades-old decisions blocking states from taxing online purchases if the vendor had no "physical presence" in that state, according to The Associated Press.

Many large online retailers, including Walmart, Target and Apple, already collect state taxes. Some states that lack a broad sales tax, including New Hampshire, Montana and Washington, had submitted arguments to the court taking the opposite position. Prior to the ruling, if you lived in NY and bought a TV from a retailer like Newegg - which has no physical stores in NY state - you wouldn't have to pay sales tax on your purchase.

For this case, South Dakota v Wayfair Inc., Justice Ruth Bader Ginsburg joined Justices Samuel Alito, Neil Gorsuch, Anthony Kennedy, and Clarence Thomas to deliver the majority opinion. North Dakota decision, which ruled that companies need to have at least some physical connection with a state for that state can require that company to pay taxes. South Dakota took that as a prompt to change its state laws, demanding that retailers - whether online or with a physical presence - must collect taxes on their sales to state residents.

Floridians, however, already pay tax on streaming services like Netflix, and are supposed to pay state tax whenever they buy "tangible" things like books and DVDs but seldom do, the Tampa Tribune has reported. "This is a big win for local brick-and-mortar retailers, who will now get a chance to compete on a level playing field with out-of-state internet companies that have maintained an unfair edge by not collecting sales taxes".

It's the smaller businesses - some of which are third-party sellers on eBay and Amazon - that could see a greater impact.

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"Correctly calculating and remitting sales taxes on all e-commerce sales will likely prove baffling for many retailers", he wrote. Online sellers that don't charge sales tax on goods shipped to every state include jewelry website Blue Nile, pet products site Chewy and clothing retailer L.L. Bean.

States have not been able to collect taxes on online transactions unless a business had a physical presence in the state. This will be a huge boost to state budgets, but online retailers won't be pleased.

States lost out on $17.2 billion in sales tax in 2016 because of these loopholes, reported the National Conference of State Legislatures. That software, too, can be an added cost.

Chief Justice John Roberts and three of his colleagues would have kept the court's previous decisions in place. Lawmakers in the state, which has no income tax, passed a law created to directly challenge the physical presence rule. That led Daniels to announce a new deal with Amazon to start collecting the sales tax on purchases in 2014.

Stocks of online retailers were down significantly immediately following the ruling. Shares in large chains with more stores traded higher.

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