In a case involving MA online retailer Wayfair, the US Supreme Court Thursday opened the door for states to collect sales taxes on products their residents buy from Internet retailers in other states.
On a 5-4 vote, the high court overruled a 1992 decision that forbid states from requiring businesses to collect taxes on internet sales.
Justice Anthony Kennedy, who wrote the majority opinion, said the physical presence rule put brick-and-mortar businesses at a disadvantage, because they had to charge sales taxes but Internet retailers did not. 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. 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. Customers in most cases are supposed to pay the tax themselves, but both sides of the debate admit few actually do. The decision overruled a decades-old precedent that had protected out-of-state sellers from being required to collect such taxes.
States lost out on $17.2 billion in sales tax in 2016 because of these loopholes, reported the National Conference of State Legislatures.
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Forty-five states rely on sales taxes for revenue, and for those states that have no income tax, sales taxes are very important.
Conservative Chief Justice John G. Roberts Jr. led the dissent, joined by three Democratic-appointed justices. Amazon already taxes items from its own warehouses. Major online retailers such as Wayfair, Overstock, eBay, Shopify and Etsy, opposed the law change. "This Court should not prevent States from collecting lawful taxes through a physical presence rule that can be satisfied only if there is an employee or a building in the State".
The current regulation "allows remote sellers to escape an obligation to remit a lawful state tax is unfair and unjust", added Kennedy. His administration wrote a brief in defense of South Dakota's position and the president has taken issue with Amazon's tax collection policies over Twitter. Amazon.com Inc. shares fell as much as 1.9 percent before paring losses.