US Supreme Court clears the way for sales taxes on all e-commerce sales
The court said that states were being harmed by the inability to collect taxes from e-commerce sellers.
Online shopping may soon be a little more expensive. In a case called South Dakota v. Wayfair (.pdf), the US Supreme Court today overruled a 1992 decision, Quill v. Heitkamp, that prevented states from requiring online retailers to collect sales tax when there was no physical business presence in the state.
Quill was a catalog (not e-commerce) retailer that had no presence in North Dakota. The Quill court ruled that the catalog seller didn’t have to collect sales tax from North Dakota residents. But that decision, which helped support the growth of e-commerce, wasn’t about e-commerce itself.
Quill is a precedent that traditional retailers have sought to overturn for 20 years — because they believe it gives e-commerce sellers an unfair price advantage. Accordingly, the National Retail Federation, which substantially represents traditional retailers, celebrated the decision and called on Congress to pass uniform sales tax rules for omnichannel merchants.
In the interim, many states tried in various ways to get around Quill to collect sales taxes, with some success. USA Today points out that most of the top 20 e-commerce sellers already collect sales taxes in most states because they have warehouses or local showrooms there or because state laws can successfully reach them.
Justice Anthony Kennedy wrote the majority opinion, supported by most of the Court’s conservatives and, somewhat surprisingly, Ruth Bader Ginsburg. Among other technical and practical reasons cited by the majority for its decision was the argument that no-sales-tax rules hurt state revenues supporting schools and services.
The decision today opens the door for states to pass new legislation and begin collecting more sales taxes from online sellers. Critics of the decision said it would unduly burden and harm small businesses, which the majority acknowledged was possible.
This is probably not the end of the online sales tax debate, though it does mark the end of an era in e-commerce. It remains to be seen how consumers respond. For more background on past legislative and lobbying efforts to address sales tax on online purchases, see Online Sales Tax: Why E-Commerce Companies Are On Both Sides Of The Debate from our archives.
About The Author
Greg Sterling is a Contributing Editor at Search Engine Land. He writes a personal blog, Screenwerk, about connecting the dots between digital media and real-world consumer behavior. He is also VP of Strategy and Insights for the Local Search Association. Follow him on Twitter or find him at Google+.
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