Online Retailers Lose State Tax Subsidy

The eBay Inc. application is seen on an Apple Inc. iPhone in this arranged

South Dakota wanted out-of-state retailers to begin collecting the tax and sued several of them: Overstock.com, electronics retailer Newegg and home goods company Wayfair.

The Supreme Court's 5-4 decision overturns a 1992 court ruling that limited state tax authority to sales by businesses physically in the state. Before this, the law stated that sales tax could only by collected from sellers with a physical presence within the state's borders.

In a 5-4 vote, the U.S. Supreme Court chose to reverse a 26-year-old decision saying that all states can now require internet retailers to collect sales and use tax in states where they lack a physical presence.

South Dakota law requires retailers with more than $100,000 in sales or 200 transactions annually in the state to pay a 4.5 percent tax on purchases. The internet retailers argued that allowing every state to collect taxes on online sales would cause confusion and unreasonable burdens in today's online-heavy retail economy.

The US Supreme Court ruled Thursday that American states had the right to tax internet sales of goods and services.

While almost impossible to determine how much revenue Johnson City or Washington County loses to online sales, state officials estimate Tennessee loses between $200 million and $450 million annually. For others, it also included the added bonus of not having to pay sales tax from select merchants. Tom McGee CEO of the International Council of Shopping Centers said: "We think this levels the playing field and promotes competition".

Second, Hawaii is not a member of the Streamlined Sales Tax Agreement and can not be a member unless its laws are amended significantly.

States also still must announce dates by which retailers must be in compliance, says Scott Peterson, a vice president at Avalara, a manufacturer of tax collection software. The decision means that South Dakota can now dictate some of the business operations of firms that have no representation in the South Dakota legislature. North Dakota decision it replaces. South Dakota's gambit worked: in its.

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The case the court ruled in has to do with a law passed by South Dakota in 2016.

The cases the court overturned said that if a business was shipping a customer's purchase to a state where the business didn't have a physical presence such as a warehouse or office, the business didn't have to collect sales tax for the state. "It's clear that (retailers) are going to try to incorporate increases in the prices to pass along the higher costs to the consumer", said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.

Wayfair said it already collects sales taxes on 80 percent of its USA orders.

The 16 states with laws similar to South Dakota's, including IN and ME, are less likely to be challenged. The Court in Wayfair overruled Quill as well as an earlier physical presence case, National Bellas Hess v. Department of Revenue of IL.

"It's disappointing to have to turn away business", Gendelman said, "but the Supreme Court hasn't left us much choice".

Amazon has long lobbied for a federal law that streamlines online sales tax collection nationwide, but none has ever gained traction.

Kennedy wrote that the 1992 precedent that affirmed that a physical presence is required - a case called Quill v.

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