Sales Tax for Online Purchases: Supreme Court Divided 

You know that feeling of joy and satisfaction you experience when you save on sales tax on an online purchase? That may soon change.

South Dakota v. Wayfair (No. 17-494), a case heard by the Supreme Court on Tuesday, has the Justices divided on the outcome. In this case, the court is considering whether to overrule Quill Corp v. North Dakota, a 1992 decision that effectively prohibited out-of-state retailers that do not have a physical presence in the state to collect tax on sales to state residents.

The South Dakota Attorney General Marty Jackley argued that states are losing massive sales tax revenue, estimated to be tens of billions of dollars, that are needed for important expenditures like infrastructure, education and healthcare. Furthermore, smaller, brick-and-mortar businesses are being harmed by out-of-state companies that have have an unfair price advantage. He argued that the Quill decision does not make sense in our digital era, where online shopping hit $360 billion in 2016. According to Jackley, the burdens previously identified during the Quill decision have since been solved by newly developed software.

The lawyer for the three internet retailers in this case, Wayfair, and Newegg, argued that a ruling that overturns Quill would impose a massive burden on small online sellers. Navigating each individual state’s tax laws would be very challenging for online retailers, especially small businesses and sellers on sites like eBay and Etsy. The respondents in the case believe that this decision should be resolved in the legislature, not the Supreme Court.

Currently, big online companies like Amazon and Walmart already charge their customers sales tax for online purchases that are made directly from the company, rather than third-party sellers. But small sellers with no physical location don’t have to charge sales tax outside of their own state, which is why small online boutiques and independent sellers don’t charge their customers sales tax. Compelling the small sellers to charge sales tax in different states places a heavy burden on them to navigate unfamiliar tax codes, without the help of accountants.

On the other hand, brick-and-mortar stores are suffering a decline in in-store sales and many are frustrated by what’s known in the retail world as “showrooming.” This is when a customer visits a store to see a product in person, and subsequently purchases it for a lower price online. They want fair competition with all sellers, including online retailers.

A decision by the Supreme Court is expected in late June so stay tuned. We’ll keep you up to date on any major changes for consumers.

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