Court rules states can collect more online sales taxes

The U.S. Supreme Court on Thursday settled the biggest tax question of the internet age, ruling that states can collect sales taxes fromonline shoppers no matter where the businesses they patronize are located. In California, the state’s most recent estimates show the tax total could amount to about $1.5 billion a year.

When the internet was in its infancy, online retailers such as Amazon took advantage of tax laws — which hadn’t yet caught up with technology — to offer low prices online. This ruling signals how much the internet has matured. Cases in point: Amazon is now among the world’s most valuable companies, and its CEO, Jeff Bezos, is the richest person in the world. San Jose-based eBay, a pioneering online marketplace, has 171 million active buyers around the globe.

As for consumers, will the ruling mean our wallets are about to get lighter?

For those who tend to patronize the biggest retailers, the ruling may not make much of a dif--

ference in that way. Long under pressure from states to collect sales tax, Amazon began collecting them last year for sales of its own products in the final four states where it hadn’t already done so.

“Consumers are used to paying sales tax, so no big deal,” Tim Bajarin, principal analyst with Campbell-based Creative Strategies, a market researcher, said Thursday. “Here in California, we already pay sales taxes on Amazon transactions. If you’re buying online from Walmart or Target, you’re still paying sales taxes.”

The ruling will hit hardest the small businesses that don’t currently charge sales tax for online transactions. That affects not just the businesses themselves, but consumer choice — though the effects may not be felt right away.

States first would have to adopt laws such as South Dakota’s, which was the subject of the Supreme Court ruling. South Dakota’s law requires out- ofstate sellers who do more than $100,000 in annual business in the state, or more than 200 transactions with that state’s residents, to collect sales taxes.

“Will states step forward and pass laws similar to South Dakota?” asked Annette Nellen, director of the Masters in Science in Taxation program at San Jose State University, on Thursday.

California, which joined with 41 other states, two territories and the District of Columbia in asking the Supreme Court for the very outcome the court delivered, is “currently reviewing the court’s opinion to determine next steps to support taxpayers,” said Paul Cambra, with the Office of Public Affairs for the California Department of Tax and Fee Administration, on Thursday.

There is great incentive for the state to adopt an online tax system: The California Board of Equalization estimated last April that for fiscal years 2016- 2017, the state’s total revenue losses “related to remote sellers for both businesses and household consumers” were about $1.453 billion. It expected that number to grow to $1.566 billion in 2017-2018, and $1.691 billion in 20182019.

Nellen said it’s also possible Congress will step in and “tone down” the ruling, or “require states to do something to make it easier.”

That’s what eBay has long advocated.

In a post on its website Thursday, the company said it “urges Congress to step in and provide clear tax rules, with a strong small business exemption, to help small businesses take advantage of the Internet to grow and create local jobs.”

Smaller businesses — some of which are thirdparty sellers on eBay and Amazon — may face even bigger concerns.

“Today’s decision promises to subject small businesses reliant on e- commerce to new and burdensome tax obligations in states across the nation,” Ed Black, president of the Computer & Communications Industry Association, said in a statement Thursday. “CCIA has serious concerns about the future implications for e- commerce if governments are empowered to tax those who reside beyond their borders.”

Thursday’s 5- 4 ruling by the nation’s highest court overruled its own 1992 ruling, the so- called “Quill decision,” which kept states from requiring merchants to collect sales tax unless they had a physical presence in the state.

Now, as internet sales grow— they reached $123.7 billion in the first quarter of 2018, up almost 4 percent over the previous quarter, according to the U. S. Department of Commerce — the court has made a different decision, citing studies that suggest states lose out on up to $33.9 billion a year in uncollected online sales taxes.

“The Quill Court did not have before it the present realities of the interstate marketplace, where the Internet’s prevalence and power have changed the dynamics of the national economy,” Justice Anthony Kennedy wrote in the ruling. An ideologically-mixed group of justices — Ruth Bader Ginsburg, Clarence Thomas, Samuel Alito and Neil Gorsuch — joined his opinion.

Chief Justice John Roberts dissented, along with Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan, saying U.S. lawmakers should take up the issue.

“Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress,” Roberts wrote.

In the amicus brief eBay filed in support of the retailers South Dakota had sued over collecting sales taxes — Wayfair, Overstock and Newegg — the company said overturning Quill would “greatly undermine the growth opportunities available to the hundreds of thousands (if not millions) of independent small businesses that sell online and represent a vital segment of the national economy.”

Etsy, the online marketplace where many artists and small-business owners sell their wares, also filed a brief.

“Etsy recently asked a sample group of sellers how they would respond to laws requiring the collection and remission of taxes on sales outside the sellers’ home jurisdictions,” the company said. “Twentythree percent of Etsy sellers surveyed stated that they would stop selling to places in which they would incur such an obligation; five percent of sellers said they would close their businesses altogether.”

Another potential consumer impact: If all states require businesses to collect sales taxes, individual taxpayers wouldn’t have to figure out their sales taxes come tax time. In California, for example, tax filers are supposed to indicate how much tax they owe on purchases from-out-of-state retailers.