Favorable U.S. tax ruling gives limited boost to big-box retailers

Lynette Rhodes

The U.S. Supreme Court ruled in a 5-4 decision Thursday that online retailers can now collect sales taxes on out-of-state purchases.

A 2017 study by the federal Government Accountability Office estimated that North Carolina was losing $235 million to $350 million a year in sales tax on online purchases.

Lawmakers have tried unsuccessfully to pass online sales tax legislation for years, with the most recent attempt failing after several conservatives called the provision a tax increase on online shoppers. If a company doesn't expect to reach the threshold in a state, it may decide not to collect tax.

"With today's ruling, all businesses will compete on a level playing field", said South Dakota Gov. Dennis Daugaard (R), whose state brought the challenge to the Supreme Court. The ruling was praised by some in the retail industry for clarifying how sales taxes should be handled in the ecommerce era. "We do have a mechanism in place in Tennessee that we can begin collecting sales tax", Hawk said.

In a concurring opinion, Justice Clarence Thomas said that after ruling for the retailer in 1992, he had changed his mind. "Eliminating the physical nexus standard is good news for all retailers because it negates or the states' need to enact confusing and controversial laws (such as Massachusetts' cookie nexus law) in efforts to bypass Bellas Hess and Quill and get remote retailers to collect sales tax legally due".

South Dakota taxes most products at a single rate, exempts small sellers and doesn't allow retroactive collection.

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"E-commerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule", he wrote. That ruling held that a state can not require an out-of-state seller with no physical presence in the state to collect and remit sales taxes on goods the seller ships to consumers there. He suggests retailers consult with their accountants to determine the states where they should be in compliance.

While Amazon and other large online retailers regularly collect sales taxes on purchases, many others have refused to do so. B&H doesn't require that buyers pay sales tax if they place orders outside of NY or New Jersey, and while you're supposed to later pay those uncollected funds when tax time comes around, the vast majority of people don't. He's concerned about consumers cutting back their purchases when they see they have to pay sales tax, but he also believes in time they'll get used to the added cost.

The case the court ruled in has to do with a law passed by South Dakota in 2016. When Amazon opens a fulfillment center in a state, it starts collecting sales tax, noted the report.

A case study Vince Kadlubek was originally happy enough when he heard of the Supreme Court ruling. The law required out-of-state sellers who do more than $100,000 of business in the state or more than 200 transactions annually with state residents to collect sales tax and turn it over to the state.

The case decided was South Dakota v. Wayfair; South Dakota was suing Wayfair, an e-commerce retailer that does not collect state taxes.