Online sales tax ruling to boost state, local budgets

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The previous court decisions "created an inefficient 'online sales tax loophole" that gives out-of-state businesses an advantage. The law required out-of-state sellers who do more than $100,000 of business in the state or more than 200 transactions annually with state residents to collect sales tax and turn it over to the state. The decision was seen as a victory for brick-and-mortar stores, which felt they were at a disadvantage to online outlets that did not need to collect the taxes.

On June 21, the US Supreme Court overturned a 26-year ban on levying online sales tax, satisfying South Dakota's complaint of an outdated ruling that had made much of the internet a tax-free zone.

Many e-commerce giants like Amazon and Walmart already collect sales tax because they're so big they have a large enough presence throughout various states to collect sales tax.

The decision today opens the door for states to pass new legislation and begin collecting more sales taxes from online sellers. But others have resisted, making Thursday's decision significant. "Wayfair has long supported a legislative solution that would establish a level playing field for brick-and-mortar and online retailers by permitting states to collect sales tax on online sales".

Right now, it's a law that Alabama doesn't currently have, but shopper Barbara Barnaby says if the state does decide to force online shoppers to pay state sales tax, she'll feel the impact.

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Amazon, which was not involved in the Supreme Court case, collects sales taxes on direct purchases from its site but does not typically collect taxes for merchandise sold on its platform by third-party vendors, representing about half of total sales. The latter provisions were included to alleviate the burden on small businesses.

The Supreme Court said the physical presence rule was "unsound and incorrect".

The US Supreme Court ruled in favour of South Dakota.

Roberts, in dissent, said e-commerce has exploded in the United States in part because there have been uniform rules.

Last year, the Government Accounting Office estimated that state and local governments were collecting 75% to 80% of the taxes they are owed from "remote sellers", but they were nonetheless losing between $8 billion and $13.4 billion a year in uncollected taxes for online sales. That means the case will be sent back to South Dakota for a final decision.

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