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States can now force you to pay online sales tax

21 June 2018

More than 40 states had asked the high court to overrule two, decades-old Supreme Court decisions that they said cost them billions of dollars in lost revenue annually.

The Supreme Court handed down a ruling Thursday granting states broad authority to require online retailers to collect sales tax on purchases in states where they have no physical presence - a potential win for struggling brick-and-mortar stores.

The case is South Dakota v. Wayfair, 17-494.

"Prior to today, Quill required that, to force out-of-state retailers to collect tax on sales to residents of the state, the out-of-state retailer had to have a physical presence in the state", said Jon Barooshian, a partner at law firm Bowditch. Customers were generally supposed to pay the tax to the state themselves if they were not charged by the merchant, but the vast majority of consumers did not. Before this ruling, Amazon, for example, collected sales tax only from customers in Washington and Pennsylvania. North Dakota, which prevented states from collecting these taxes.

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It ruled that the provision amounted to a "judicially created tax shelter" that put some companies at an advantage. Chief Justice John Roberts wrote a dissenting opinion. The company maintains that it has been collecting tax in all 45 states which require it.

The ruling comes against a backdrop of Trump's criticism of Amazon, the leading player in online retail, on the issue of taxes and other matters.Amazon, which was not involved in the Supreme Court case, collects sales taxes on direct purchases on its site but does not typically collect taxes for merchandise sold on its platform by third-party venders, representing about half of total sales.

South Dakota was backed by 35 states in the case, each of which filed an amicus brief in support of online sales tax. After the decision was announced, shares in Wayfair and Overstock both fell, with Wayfair down more than 3 percent and Overstock down more than 2 percent.

"There was a time when we wanted the United States, as a matter of policy, to protect nascent internet businesses by keeping down the tax burden, but that time is long gone", he said. First, the Act applies a safe harbor to those who transact only limited business in South Dakota.

States can now force you to pay online sales tax