Supreme Court in Online Sales Tax Ruling

Posted 6/22/2018

The US Supreme Court has ruled that states have the authority to force online retailers to collect sales taxes, overturning a precedent that had barred US states from requiring businesses with no "physical presence" in that state to collect sales taxes. The case, South Dakota v. Wayfair, saw the justices vote 5-4 for the state, which passed a law in 2016 that required firms doing a certain amount of business in the state to collect sales tax from customers. The Supreme Court rejected a challenge to that law, overturning a 1992 Supreme Court decision that established the physical presence requirement. The ruling is likely to lead other states to try to collect sales tax on purchases from out-of-state online businesses more aggressively; 45 of the 50 states impose sales taxes, with the duty to pay them for online purchases falling on the consumer. However, compliance is low, 96% of such taxes going uncollected, according to a California tax board estimate. Carl Davis, research director at the Institute on Taxation and Economic Policy, said: “This is going to allow state and local governments to improve their tax enforcement and to put local business on a more level playing field.”