Online Retailers Lose State Tax Subsidy

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Supreme Court reversed course Thursday, saying states can charge sales tax for online purchases.

Brick-and-mortar stores could also see some gains, since no-online-taxes meant that goods were more expensive if you bought them at an actual store.

A Supreme Court judge said the "physical presence" rule had become untenable, citing studies suggesting that the rule costs states up to Dollars 33.9 billion per year in uncollected sales taxes and distorts the market by giving the advantage to remote sellers, over those anchored in the community.

Although Montana opposed the change, more than 40 states, and the Trump administration, requested the court rule in favor of allowing them to collect a sales tax from business without a physical presence in their state.

Nevertheless, there will be a mad scramble by the 45 states that have sales taxes to try to collect sales taxes from out-of-state retailers.

- A Supreme Court ruling is making shopping on the internet more expensive.

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Stock prices for major online retailers fell after the decision was announced. Thanks to a 1967 Supreme Court ruling that said states couldn't force mail-order catalogs to collect sales tax unless that company had a physical location in the state, online retailers have been able to skirt the issue of collecting sales tax.

Justices Anthony Kennedy, Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito, and Neil Gorsuch delivered the opinion while John Roberts, Stephen Breyer, Sonja Sotomayor, and Elena Kagan dissented.

"We were hoping one way or another it would be overturned, either by the Supreme Court or Congress", he said. The Government Accountability Office estimated that state and local governments could have collected between $8 billion and $13 billion in sales taxes in 2017 "if states were given authority to require sales tax collection from all remote sellers".

Walmart also praised the Supreme Court for "closing a loophole" that "produced an uneven playing field for main street businesses".

"Startups and small businesses may benefit from the physical presence rule, but here South Dakota affords small merchants a reasonable degree of protection", the ruling says. Small businesses may have to figure out how to comply with various state sales tax laws, though there are software options to help.

Amber Sander, owner of Boots and Heels in downtown Fargo, is hoping this decision will lead to a positive future for her business as well as North Dakota. Currently Amazon collect sales tax on Marketplace purchases in just two states, Washington and Pennsylvania. The law applies to out-of-state retailers if they have more than $100,000 in sales or complete more than 200 transactions per year within South Dakota.

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