Supreme Court approves taxes on internet sales
The Supreme Court upended the internet marketplace Thursday ruling that states can collect sales taxes from online retailers. The decision will boost state revenues at the expense of consumers.
WASHINGTON – A closely divided Supreme Court upended the nation’s internet marketplace Thursday, ruling that states can collect sales taxes from online retailers.
The decision will boost state revenues at the expense of consumers and sellers who have been able to avoid sales taxes. But the justices did not specify what types of exceptions states may impose to limit the burden on small businesses.
Justice Anthony Kennedy wrote the 5-4 decision, overturning the court’s former precedent that states cannot require companies without a physical presence in the state to collect sales taxes. He was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch.
“The internet’s prevalence and power have changed the dynamics of the national economy,” Kennedy wrote. “This expansion has also increased the revenue shortfall faced by states seeking to collect their sales and use taxes.”
Chief Justice John Roberts dissented, saying the decision should be left to Congress, and was joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan.
“The burden will fall disproportionately on small businesses,” Roberts said. “The court’s decision today will surely have the effect of dampening opportunities for commerce in a broad range of new markets.”
The ultimate effect of the ruling remained in doubt, and lawyers for online retailers warned of future lawsuits to determine what businesses and consumers will have to do. The ruling only directly affected South Dakota, which had sought to collect taxes from online retailers with more than $100,000 in annual sales or 200 transactions in the state.
“States would be well advised not to try to go further than South Dakota did,” said former U.S. Solicitor General Paul Clement. “If a state deviates from that model, they’ll be asking for trouble.”
Kennedy said the court’s 25- and 50year-old precedents requiring sales tax collection only from physically present businesses represent “a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a state’s consumers.”
Faced with the South Dakota law and its exemptions for the smallest retailers, the justices nevertheless opened the door to states that may want to collect sales taxes from a larger number of sellers. Kennedy said Congress or lower courts could step in to referee those situations.