Supreme Court Decides Wayfair Online Sales Tax Case


Numerous largest online retailers, such as Amazon, already pay sales taxes because they have enough of a physical presence in most states through their network of warehouses and distribution facilities to qualify as taxable by states.

Indeed, Justice Gorsuch once called the current system "a judicially created tax shelter".

Small online businesses will be the hardest hit, said Chris Cox, a lawyer for e-commerce industry group NetChoice. The decision overturns a 1992 ruling that prevented the practice.

Thursday's ruling involves a dispute between the state of South Dakota and Boston-based Wayfair Inc., along with other two other online sellers, Inc. and Newegg Inc.

"Consumers will quickly feel the negative effects as those businesses dry up or are forced into the arms of Internet giants", he added.

South Dakota is leading the legal charge, passing a law requiring the collection of sales tax on Internet vendors with at least 200 yearly transactions or $100,000 in sales to its residents.

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That's resulted in states losing millions of dollars in sales taxes every year and online retailers gaining a decades-long tax advantage against their brick-and-mortar peers.

Forty-five states rely on sales taxes for revenue, and for those states that have no income tax, sales taxes are very important. Amazon already taxes items from its own warehouses. South Dakota's governor has said his state loses out on an estimated $50m a year in sales tax that doesn't get collected by out-of-state sellers. However, Alaska and Montana allow individual individual cities to collect local sales taxes, according to the Tax Foundation.

Amazon and eBay's third-party vendors, for example, are often cited as an example of small retailers that could suffer from changes to the tax structure.

In the digital era, the costs of complying with different tax regimes "are largely unrelated to whether a company happens to have a physical presence in a state", Kennedy wrote.

A Government Accountability Office audit said states missed out on about $13.7 billion in tax revenue in 2017.