Shopping online? Now you will have to pay taxes

Supreme Court rules for states in online sales tax case

But Thursday morning the U.S. Supreme Court ruled that mode of thinking is outdated and unfair, and decided that states can impose sales taxes on all online sales, based on where the product is being shipped.

CNET reports that this overturns a standing 1992 decision that prevented states from collecting sales tax from online retailers that had no physical presence in their state.

Following an earlier indication by the court in 2015 that it would reconsider the Quill decision, the South Dakota legislature chose to charge companies that deliver more than $100,000 worth of goods or services or have more than 200 separate transactions within the state its 4.5 per cent sales tax.

"This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store, or both", Matthew Shay, federation president and CEO, said in a statement. Wayfair, the Court ruled that online retailers must collect state taxes regardless of whether the retailer has a "physical presence" in the state.

For the full story, head on over to CNN Money. "In 1992, mail-order sales in the United States totaled $180 billion", he wrote.

Amazon tested that law in Texas trying to say a subsidiary was running a distribution center in Irving, but was challenged by the state of Texas when The Dallas Morning News reported the existence of the Irving facility.

South Dakota has estimated that it could take in up to $50 million a year in additional revenue with these taxes being collected. The old rule enabled online commerce to boom and helped drive an explosion of small businesses that sell their wares. That drop eliminated all the gains Overstock enjoyed after it started accepting Bitcoins a few weeks ago which the e-tailer claimed increased sales by over 10%.

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In the original lawsuit, South Dakota sued three major online retailers: Wayfair, Overstock, and Newegg.

Now that Amazon's distribution network spans the country, it collects sales tax nationwide, though it doesn't collect on behalf of third-party sellers. North Dakota, which established the physical presence test for sales and use tax nexus. Customers were generally supposed to pay the tax to the state themselves if they don't get charged it, but the vast majority didn't.

Kennedy also wrote that the concerns of small retailers, who do minimal online sales, could be dealt with by Congress or by a further court case. Now, under this new decision, even if a company doesn't have a store, warehouse, or office in a state, its internet sales to that state's residents can be taxed.

The retail industry hailed the decision. Now that consumers make a growing share of their purchases online, states said that cost them billions annually in potential sales tax revenue.

Pressure has been building both in state legislatures and in Washington DC for over a decade to overturn the original decision and several years ago, the US' biggest online retailer Amazon chose to stop fighting it and agreed to voluntarily collect sales taxes. Chief Justice John Roberts dissented, saying the decision should be left to Congress, and was joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan. Then we have a handful of states who don't even charge sales tax at all. He said that the court's decision would result in "48 to 58 million dollars that South Dakota can use for education, healthcare, and infrastructure".

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

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