Supreme Court Ruling Rescinds Sales Tax Rules

The Supreme Court announced its ruling today in the biggest sales tax case in 26 years. The ruling affects remote and online shopping by removing a limitation on a state’s ability to enforce its collection and remittance statutes against retailers who do not have a physical presence in the state.

Every state with a sales tax requires retailers to collect sales tax from customers and to pay that tax to the state’s department of revenue. A retailer with a brick-and-mortar store in a state has little choice but to comply since the law may be more easily enforced against it. However, retailers who sell by catalog or internet only, and have no presence in the state, have always argued that this requirement is unduly burdensome. The states, in turn, have had great difficulty in enforcing this law against these “remote retailers.”

By ruling today that a retailer is not required to to have a physical presence in a state before it is subject to that state’s taxing laws, the Supreme Court removed the limitation on enforcement. This frees those states with a sales tax to impose an obligation to collect and remit sales taxes on remote retailers. In recent years, states had begun to get creative with their statutory schemes to impose such obligations without violating the Constitutional rule. However, South Dakota and several other states took a cue from Justice Kennedy in a previous ruling that it was time to bring a Constitutional challenge to the old rule.

The impact of this ruling will be felt by nearly every retailer and consumer. Removing the limitation means that nearly all catalog, online, and remote sales will have sales taxes collected by the retailer to be remitted to the proper jurisdictions, at least in states that impose a sales tax. For consumers, this means that the taxes will be the same on purchases made in brick-and-mortar stores and those made online. For retailers, the impact is much larger.

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