Internet Sales Tax: States Can Now Force Online Retailers to Collect Sales Tax, Supreme Court Rules
Online shopping is just about to become more expensive, as the U.S. Supreme Court ruled that states can require online retailers to collect sales taxes, even for transactions made outside their state.
While it's the online shoppers whose wallets are about to get hit, it's the states that came out as the winners in the 5–4 ruling that overturned older Supreme Court decisions that inhibited the collection of online sales taxes.
The way it was before this new development, retailers and businesses that have sold a product to another state where they do not have a "physical presence" are not required to collect sales tax for the state. This "physical presence" could be anything from a store branch, an office, warehouse or similar facility, according to Fox News.
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It was an "unsound and incorrect" notion, according to the ruling. According to Justice Anthony Kennedy, who authored the decision, the old "physical presence" rule is an "artificial" construct considering the marketing and distribution in a modern economy that increasingly relies on specialized service providers and outsourcing.
What's more is that the current state of online sales tax regulations also gives online sellers an unfair advantage, letting them "escape an obligation to remit a lawful state tax is unfair and unjust," Kennedy added.
Critics have slammed the new decision, with Andrew Moylan, executive vice president of the conservative National Taxpayers Union Foundation, comparing the new ruling to applying "bacon grease to the slippery slope of states taxing and regulating outside their borders," as quoted by NBC News.
Supreme Court's decision to validate South Dakota's stance on online sales taxes has also given states an unprecedented power to tax any business elsewhere on the nation "simply for daring to use the internet to access a nationwide market," he continued.
"Congress must now act to contain the fallout of this case," Moylan added.
