High court to hear sales tax case for online purchases

States, counties contend they lose billions

WASHINGTON — The Supreme Court agreed Friday to wade into the issue of sales tax collection on internet purchases in a case that could force consumers to pay more for certain purchases and allow states to recoup what they say are billions of dollars in lost revenue annually.

Under previous Supreme Court rulings, when internet retailers don’t have a physical presence in a state, they can’t be forced to collect tax on sales into that state.

A total of 36 states — including Pennsylvania — and the District of Columbia had asked the high court to take up the issue because the current rule is outdated and unfair in an era when Americans do much of their shopping online.

In a brief filed with the court, the states wrote, “As the volume of Internet-based retail transactions continues to compound daily, the controversial physical presence rule exacts an ever-increasing toll on the States’ fiscal health.”

In 1992, when home shopping was dominated by mail-order catalogs, the high court ruled a state may require out-of-state companies to collect sales taxes only if the company had outlets or warehouses within the state. The justices said then that requiring companies to do more would amount to discrimination against interstate commerce.

But the explosion of internet sales has put pressure on Congress and the court to reconsider the issue. Traditional retailers — including large brick-and-mortar

retailers like Walmart and Target — joined the fray, arguing it is unfair to require them, but not their online competitors, to charge sales tax with each purchase.

States and counties told the court they lose between $13 billion and $34 billion each year because they cannot collect sales taxes on all online purchases.

The states said that according to one estimate they will lose out on $211 billion in tax revenue over the next five years if the Supreme Court’s previous rulings stand.

The Government Accountability Office, which provides nonpartisan reports to Congress, wrote in a report last year that state and local governments would have been able to gain between $8.5 billion and $13 billion in 2017 if they could require out-of-state sellers to collect tax on sales into the state. All but five states charge a sales tax.

Consumers who purchase from out-of-state retailers are generally supposed to pay the state taxes themselves, but few do.

Internet giant Amazon.com fought for years against collecting sales tax but now does so nationwide, though thirdparty sellers on its site make their own decisions. But the case before the highcourt does directly affect other online retailers.

The case the Supreme Court agreed to hear Friday comes from South Dakota, which has no state income tax and relies on retail sales and use taxes for revenue.

In 2016, South Dakota lawmakers passed a law requiring out-of-state sellers like Overstock.com and home goods company Wayfair to collect and turn over sales tax to the state.

The state’s highest court struck down the law.