Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

Small Sellers Hit Hard by Supreme Court Sales Tax Ruling

Levine/NewscomToday the Supreme Court overturned past decisions and ruled, 5-4, that states may potentially demand that businesses that don't have actual physical presence within their borders still pay sales taxes on what they sell to residents who live there.

The Trump administration backed South Dakota in the case, arguing that no one could have foreseen how rapidly e-commerce would expand.

Justice Clarence Thomas, who ruled in favor of striking out the 1992 law, said that a "quarter century of experience has convinced me" the Supreme Court's earlier decision was no longer justified, adding that it was "never too late" to arrive at a better position. That climbs to about $103 million in the next fiscal year. He also had supported Nebraska joining with 33 other states and the District of Columbia previous year in supporting South Dakota's case before the high court.

The retailers refused to collect sales tax - citing a 1992 law that prohibited states from collecting sales tax from retailers that did not have a "physical presence" in their state, such as a store, warehouse or sales representatives. The law makes an exception for companies with less than $100,000 in annual sales or 200 transactions in the state, seeking to help smaller retailers compete with big e-commerce incumbents. It treats economically identical actors differently for arbitrary reasons.

Even before the ruling, Pennsylvania and Washington state had passed laws that would require Amazon to collect sales tax on items sold by third-party vendors. In today's context, he said, the physical presence rule is "an extraordinary imposition by the judiciary on the states' authority to collect taxes and perform critical public functions".

In fact, 52 percent of the state's general-fund revenue - which pays for schools, prisons and social services, among other programs - comes from retail sales and use taxes, according to a 2016 report.

Speaking for the majority, Justice Anthony Kennedy argued that, by requiring a physical presence, the current system will "embroil courts in technical and arbitrary disputes about what counts as physical presence".

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Congress protected those Internet sellers in 1998 legislation that has since been made permanent. The dissenting opinion was written by Chief Justice John Roberts, joined by Stephen Breyer, Sonia Sotomayor, and Elena Kagan.

Shares of online retailers fell sharply following the ruling, with Wayfair down 3.8 percent, Overstock off 2.1 percent and Etsy Inc. shares off 4.4 percent. The ruling means that states may now seek to tax more of those sales, Moody's analyst Charlie O'Shea said.

Some members of Congress objected to the decision.

But NetChoice, a trade association for e-commerce firms, warned small businesses would have trouble complying with the different tax requirements in each state. Bob Goodlatte (R-Va.), Anna Eshoo (D-Calif.), and Jim Sensenbrenner (R-Wis.).

Brick-and-mortar retailers cheered the decision. The state conceded in court, however, that it could only win by persuading the Supreme Court to do away with its physical presence rule.

The Supreme Court heard South Dakota v. Wayfair on April 17, and right out of the gate, the crux of the argument became apparent.

Wayfair said that it "welcome [s] the additional clarity provided by the Court's decision today". North Dakota, which prevented states from collecting these taxes. By vacating [the 1992 ruling], we believe there is now a call to action for Congress to create a simple, fair federal solution for microbusinesses.

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