The US Supreme Court has handed down a ruling that online retailers can be required to collect local sales taxes even in states where they have no physical presence, in a move which is designed to level the playing field with bricks-and-mortar businesses
The latest ruling overturns the 1992 case, Quill Corporation vs North Dakota. This found that the US constitution bars states from requiring businesses to collect sales tax unless they have a substantial connection to the state.
This decision was widely viewed as a boost to online retail, by enabling companies to sell nationwide without having to meet individual state and local tax codes, unlike their competitors on the high street.
The latest ruling, South Dakota vs Wayfair, came about because the state calculated it was losing between $48m (£36m) and $58m (£43m) annually from its inability to tax online sales. In response it enacted a law requiring out-of-state sellers to collect and remit a 4.5% sales tax ‘as if the seller had a physical presence in the state.’ The act covers only sellers that, on an annual basis, deliver more than $100,000 of goods or services into the state or engage in 200 or more separate transactions for the delivery of goods or services into the state.
South Dakota then sued Wayfair, Overstock and Newegg, all online sellers with no employees or real estate in South Dakota, who each met the minimum sales or transactions requirement, but do not collect the state’s sales tax.
While lower courts ruled in favour of the online retailers, citing the original Quill decision, the Supreme Court has now overturned those decisions, saying the retail landscape has changed in recent years as more transactions move online.
South Dakota is likely to be able to begin collecting sales tax on online purchases in 30 to 90 days, but other states will need to pass similar legislation before they can begin seeking tax on internet suppliers. The court did not decide on the issue of whether tax could be collected retrospectively, or whether there were instances where the transaction amounts were so small that the tax levied could be discounted.
President Trump, who has previously accused Amazon and other internet retailers of avoiding taxes, wrote on Twitter that the decision was a ‘great victory for consumers and retailers.’
Wayfair, in a statement, said it already collected sales tax on approximately 80% of its orders in the US. ‘As a result, we do not expect today’s decision to have any noticeable impact on our business,’ the company said.
Amazon has already said it collects sales tax in the 45 states that have one, although this applies only to transactions made directly with the tech giant, and not to online sales made by independent businesses which list their products on its platform.
US Supreme Court ruling in South Dakota v. Wayfair, Inc, et al is here.
Report by Pat Sweet