The U.S. Supreme Court has made it possible for states to begin taxing companies headquartered outside their barriers, if they do business within the state.
This clears the way for states to begin imposing sales taxes on web-based businesses.
Before, states could only require vendors to charge and remit sales taxes if the seller had a physical presence within state lines. If not, the buyer would be responsible for paying taxes to the state at the same rate. But consumers so rarely self-tax that South Dakota estimates that it loses $48 to $58 million annually. For that reason, South Dakota passed a law requiring certain sellers without a physical presence to collect sales taxes. The law applied to companies selling more than $100,000 in goods and/or services, or engaging in 200 or more transactions in the state. When some major online retailers failed to comply, the state sued, asking the court to declare the law’s validity. The online retailers said the South Dakota law was unconstitutional. Both the trial court and the State Supreme Court agreed with South Dakota.
The U.S. Supreme Court affirmed the lower court decisions, overruling the long-time precedence of two key cases often cited by retailers in opposition to internet sales taxes.
As would be expected, the decision has gained mixed reactions in the business community. The National Retail Federation applauded the decision. The organization had filed a friend-of-the-court brief in favor of such a decision.
“Retailers have been waiting for this day for more than two decades,” said NRF President/CEO Matthew Shay in a statement. “The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well. This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both.”
Others believe the decision will hurt smaller companies that would need to comply with the law, which would involve putting technology in place to manage the varying tax charges from state to state.
Industry reaction and analysis will follow in upcoming coverage.
