States May Collect Sales Tax from Internet Sellers

On June 21, 2018, in the case of SOUTH DAKOTA vs. WAYFAIR, INC., ET AL, the U.S. Supreme Court held

states have the right to collect sales tax from internet retailers even though they do not have a physical presence in the respective state(s).

The majority of the Court noted the number of people in the United States that have internet are close to 90%, and there are nearly one-half trillion dollars in e-commerce annual (mail order) sales. The Supreme Court then decided to overturn a 1992 decision that held the commerce clause was controlling since it prohibited states from burdening and/or discriminating on interstate commerce. With the current Decision, however, states are no longer barred from collecting sales taxes from companies just because they do not have a physical presence in the particular state. The more than 25 year old Court holding that was overruled required a “substantial nexus” or physical presence to exist with the activity in order for there to be a tax.

The dissent focused on the complex nature of collecting sales tax; the huge number of city, county and state jurisdictions and, therefore, widely varying rates of sales tax; along with the negative impact on commerce as the grounds that weigh heavily against states being permitted to impose sales taxes on internet sellers. The dissent opined this is a matter for the U.S. Congress and not the Courts to decide.

In order to be competitive, some brick and mortar retailers have for quite awhile “matched” the price of online retailers, However, there would remain a savings in not paying sales tax by purchasing on the internet; this savings may soon be history as far more states will be taxing these sales if they have not previously collected that from e-commerce retailers.