Supreme Court ruling lets states collect sales tax from online purchases

The Supreme Court has ruled states can require online retailers to collect sales tax even if they have no physical presence in a state, a move that will affect cigar retailers.

The case the court ruled on involved a 2016 law passed by South Dakota, which said it was losing out on an estimated $50 million a year in sales tax not collected by out-of-state sellers.

States have become emboldened to defy Quill or devise other ways to try and get the use tax owned to them by their residents for their online purchases from out-of-state retailers.

In a statement, Senator Jeanne Shaheen calls the ruling a "disastrous decision for New Hampshire's economy". The old rule enabled online commerce to boom and helped drive an explosion of small businesses that sell their wares. Smaller, local businesses also complained that the previous decisions put them at a disadvantage with online competitors. South Dakota was backed by the Trump administration in the case.

Forty-five states rely on sales taxes for revenue, and for states that have no income tax, sales taxes are very important. Kennedy wrote that the rule "limited States' ability to seek long-term prosperity and has prevented market participants from competing on an even playing field".

Justices Anthony Kennedy, Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito, and Neil Gorsuch delivered the opinion while John Roberts, Stephen Breyer, Sonja Sotomayor, and Elena Kagan dissented. But in recent years, several Supreme Court justices suggested the moment was ripe to review the 1992 decision, prompting South Dakota to pass a law forcing online stores to collect a 4.5% sales tax if sales and employee count hit a certain threshold.

A federal audit said states lost $13.7 billion in uncollected sales tax revenue previous year.

The new sales taxes will go into effect in January.

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The decision, in which South Dakota prevailed over the online furniture retailer Wayfair, immediately sent ripples through the internet shopping industry sending shares tumbling in Amazon, eBay, Etsy and others. The 1992 decision predates e-commerce and once the internet came of age it accelerated the demise of mom and pop retailers on Main Street, he said on CNBC. Justices determined that the presence rule was becoming "further removed from economic reality" every year, and that the costs of honoring sales taxes were largely disconnected from whether or not a company had a physical footprint.

First, the court did not rule out the possibility that states may not collect taxes on all online purchases, given the negligible size of some transactions.

Amazon shares fell as much as 1.9 percent before paring losses.

Kaufman said he anticipates that the Supreme Court ruling "will eliminate any question about whether we're able to collect it". For example, the popular electronics seller B&H only charges sales tax in NY and New Jersey, where it has a physical presence.

Large retailers including Apple, Macy's, Target and Walmart, which have brick-and-mortar stores nationwide, generally collect sales tax from their customers who buy online.

State Sen. Peters, a Republican, has always been active in pushing for a system that forces retailers to collect state sales taxes.

Retailers with physical storefronts celebrated the decision, as did the National Retail Federation, a trade group comprised of some of the biggest brick-and-mortar retailers in the US. North Dakota. They argued that a decision in a case involving mail-order catalogs was obsolete in the modern e-commerce world.

  • Darren Santiago