Because the Supreme Court ruling is not legislation, and because certain parts of it are specific to the South Dakota law at issue, it does not trigger any immediate changes to Virginia’s gas tax or transportation-funding policy, said Finance Secretary Aubrey Layne. The case also provides some guidance to states by offering South Dakota’s law as a likely model.
As he noted, the online retail industry has thrived up until now based on the existing rules regarding sales taxes. The NTUF is now calling on Congress to take action and limit states power to apply sales taxes.
The decision [PDF] will have a huge impact on American ecommerce, with large companies required to calculate, charge and hand over billions of dollars through dozens of different taxes. Back then, this applied to nearly all transactions, so it wasn’t a big deal. That precedent was preserved in a key 1992 ruling. North Dakota standard that remote businesses need a physical presence to be taxed. Avalara, meanwhile, which went public last week, saw its shares spike after the ruling and ultimately gain 13.4 percent on Thursday. It was only a matter of time before the online world was forced to live with the same tax system as physical stores.
Back in 1967 though, it’s been argued, the proportion of out-of-state transactions to local retail was slim. “As a result, we do not expect today’s decision to have any noticeable impact on our business, as it may on other retailers who do not now collect and remit sales tax”.
The 5-4 ruling called the current rules “unsound and incorrect”.
Congress of course knew about the problem for years, but dragged its feet on revising the 1998 law. But how it will play out in the thicket of state tax laws remains to be seen.
Today’s ruling upheld a statute from South Dakota, which requires any company with more than $100,000 in annual sales to collect sales tax on sales made to customers in the state.
Here’s where things get interesting. The ruling means states may now seek to tax more of those sales, Moody’s analyst Charlie O’Shea said. Other retailers-including Etsy, eBay, and Wayfair-are also seeing huge stock dips. This gave them an advantage over brick-and-mortar stores. Here in IN, former Gov. Mitch Daniels’ administration agreed not to seek the sales taxes in exchange for Amazon locating several warehouses in the state.
Amazon started collecting the sales tax in MA in 2013, when it opened offices here. This is as much as half of Amazon’s business. They said local tax laws vary widely across the nation and calculating sales taxes for 10,000 local taxing jurisdictions remains a daunting task.
Local retailers said this put them at a competitive disadvantage, since someone could avoid the state sales tax by buying online. “By permitting states to tax businesses outside of their borders, the Supreme Court’s decision will usher in a new, unheralded period in interstate commerce”, Jonathan Hauenschild, ALEC’s counsel of record, said in a statement.
“Sometimes it’s just more convenient for people to do it online, but it really just depends what you are looking for”, said Karen Herzog, Sales Clerk at Opus in Greenfield. All those additional costs could drive a lot of small businesses under.
The high court has said for more than 50 years in various rulings that states can not collect taxes from sellers without a “physical presence” in those states.
In other ways, Washington and South Dakota have similar online sales-tax regimes.