Supreme Court decision small victory for bricks and mortar retailers in Hawaii


The U.S. Supreme Court's decision on online sales tax is viewed as a victory for states, but those with aggressive collection policies, such as NY and California, could be challenged by online retailers.

The decision will also be applauded by "brick-and-mortar" retailers, who have long argued that existing sales tax rules have given online vendors an unfair and significant competitive advantage in the marketplace.

Since 1992, brick-and-mortar stores have faced a crushing disadvantage because they were adding sales tax to the cost of their items while many online retailers were not. The law requires businesses with annual sales of more than $10,000 in the state to collect sales tax or inform consumers that they are liable for the tax.

"Retailers have been waiting for this day for more than two decades", Shay said.

The court's 5-4 decision spanned ideological lines, with liberal Justice Ruth Bader Ginsburg and conservative Justice Neil Gorsuch with the majority and liberal Justice Sonia Sotomayor and conservative Chief Justice John G. Roberts Jr. among the dissenters. Not only do most states impose some form of sales tax, but a number of local governments do, as well.

The Supreme Court ruling modernizes the country's tax-collection system, ending a distinct advantage that online retailers have held under a 1992 court ruling in Quill Corporation v. NY and California's rules are more complex, and those states have sought to increase sales tax collection by using broader definitions of what it means to do business within their borders. One is for retail sales, one is for wholesale sales and one is for insurance commissions.

As for payment and compliance, as states enact legislation to comply with the Wayfairruling, they will likely have payment to one state-run computer which, after taking their cut, then pays out to each local government authority and issues all necessary returns and reports.

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"In effect, Quill has come to serve as 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 - something that has become easier and more prevalent as technology has advanced", the court observed.

South Dakota's Department of Revenue is working to implement the remote seller taxation law (online sales tax) now that the U.S. Supreme Court rules states can collect that revenue. And on the high end, California could collect additional state sales taxes between $1 billion and $1.7 billion per year. As a result, we do not expect today's decision to have any noticeable impact on our business, as it may on other retailers who do not now collect and remit sales tax. "South Dakota has a uniquely simple law since it generally taxes all consumer purchases instead of carving out a bunch of exceptions, and online sellers can remit their taxes to the state instead of each and every locality".

About 16 states already have laws that will let them require tax collection by internet retailers in the coming months, and more could follow quickly.

The 16 states with laws similar to South Dakota's, including IN and ME, are less likely to be challenged. But that was an enforcement nightmare, and states got far less than they should have.

In a blog post last week, Josh Silverman, CEO of Etsy, commented on the Supreme Courts decision. For example, in over twenty states the definition of "physical presence" for state tax collection includes the presence of affiliated websites.

The burden will fall disproportionately on small businesses.

Craig Shearman, vice president of government affairs and public relations for the National Retail Federation, said the NRF has been seeking "a level play field on sales tax collection for years" which the Wayfair decision delivers.