The Supreme Court ruled Thursday that state governments to compel retailers beyond their borders to collect sales-tax revenue from consumers - a move which could rock online shopping. The cases the court overturned said that if a business was shipping a product to a state where it didn't have a physical presence such as a warehouse or office, the business didn't have to collect the state's sales tax.
For a better understanding of how the ruling could impact consumers and businesses in the Chicago area, reach out to local legal experts.
So as online retail has grown, states have sought increasingly clever ways to force out-of-state sellers to collect sales tax where they know their own residents are unlikely to pay use tax. When we asked him if sellers must immediately begin collecting sales tax for all states and all localities, he said no, "but it does mean that sellers need to start preparing for a sea change in their compliance obligations".
Honestly, this shouldn't be surprising to anyone, but it's a bummer nonetheless. "We've been working on this for years trying to get judicial and or legislative relief to level the playing field between out-of-state online business and local businesses that employ people". The South Dakota Supreme Court invalidated the law because Quill Corp. v. The company said that any attempt by states to "subject remote small businesses to audits and lawsuits" will lead to "increased litigation across the country".
Soon after the South Dakota law passed, South Dakota took it to court with retailers Newegg, Wayfair and Overstock, alleging that the companies failed to comply with their state sales tax laws. "Regardless of how Americans shop for goods, whether that's on the internet or in our neighborhood small businesses, we must expect that all retailers face equal sales tax treatment". Our reading of the ruling is that the case now returns to the South Dakota Supreme Court to evaluate the case on its merits, unfettered by the now antiquated physical nexus standard defined by Bellas Hess (1967) and upheld in Quill (1992). Some experts think states will need to pass additional legislation to collect more tax on online purchases, which could take some time.
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However, FOX 13 reported last month that the Utah Tax Commission has been quietly inking deals with a number of online retailers to get them to collect taxes. Kennedy said that rejecting the physical presence rule was needed to ensure that an artificial competitive advantage was not created by court precedents.
"There's no reason you should have to pay sales taxes in one scenario and not the other", Deskins said. Kennedy wrote that the unfairness of the tax collection situation also could be an incentive to avoid opening storefronts or distribution centers in states such as Florida, just to avoid collecting the sales tax.
The Trump administration had urged the justices to side with South Dakota.
A sales tax is supposed to be a broad tax on consumption: You buy and use things, you pay tax. The 5-4 ruling is a win for states who say are missing out on billions of dollars a year from online sales tax.