U.S. Supreme Court: states can now collect taxes from e-commerce companies

21/06/2018

Upending a decades-long system, e-commerce companies now can be required to collect sales tax in U.S. states where they have no physical presence. Consumers will have to pay the price — literally.

 

The U.S. Supreme Court issued a ruling that paves the way for states to collect taxes from e-commerce companies with no physical presence.

A 1992 Supreme Court ruling known as “Quill” had previously exempted retailers from collecting sales tax in states that they had no substantial connection to.

But brick-and-mortar businesses have long been complaining that the ruling has disadvantaged them as online retail swelled. States too have bemoaned losing what is believed to be annual revenues of billions of dollars in taxes.

In a 5-4 ruling, the court overturned its previous ruling, siding with South Dakota, which enacted a law that required all merchants to collect a 4.5% sales tax if they had more than $100,000 in annual sales or more than 200 individual transactions in the state.

 

A 1992 Supreme Court ruling known as “Quill” had previously exempted retailers from collecting sales tax in states that they had no substantial connection to.

 

The state then sued three online retailers — Wayfair, Overstock.com and Newegg — for breaking the law. Ultimately, the goal was to have the high court reconsider the precedent.

In wake of the decision, Amazon‘s stock only fell about 1%. However, other online retailers saw more significant losses. Handmade online retailer Etsy‘s shares slipped by 4.5%, to $42.21, and home goods seller Wayfair’s fell 3.2%, to $112.42, the New York Times reported.

 

In wake of the decision, Amazon‘s stock only fell about 1%. However, other online retailers saw more significant losses. Handmade online retailer Etsy‘s shares slipped by 4.5%, to $42.21, and home goods seller Wayfair’s fell 3.2%, to $112.42.

 

“Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers,” Supreme Court Justice Anthony Kennedy wrote for the majority. “Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own.”

According to Kennedy, states have been losing annual tax revenues of up to $33 billion as a result of the Quill decision.

The dissenting justices pointed out that any change to the law could harm e-commerce businesses, which have been flourishing under the current system.

Consumers will ultimately bear the burden of higher prices, as online retailers that advertised “tax free” goods adjust to the new requirement.

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