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The Supreme Court officially ruled on June 21st that states can force online retailers to collect and remit sales tax even if they don’t have a physical presence in the state. Stemming from a lawsuit filed against online retail store Wayfair by the state of South Dakota, the 5-4 decision overturns a 1992 Supreme Court precedent barring states from collecting such taxes.
The court said the previous law effectively incentivized businesses to “avoid physical presence” in states and led to “a judicially created tax shelter.”
“The Internet’s prevalence and power have changed the dynamics of the national economy,” Justice Anthony Kennedy wrote in the majority opinion. “The expansion of e-commerce has also increased the revenue shortfall faced by states seeking to collect their sales and use taxes.”
What does this mean for online consumers and retailers? The obvious is consumers paying more for online purchases as cash-strapped states tap a new revenue stream. It’s unlikely to have a substantial impact on larger online retailers or ecommerce as a whole, but the smaller online retailers like Wayfair will now be subject to the state taxing authority diminishing any previous advantages over traditional brick and mortar businesses.
Although this particular case was only based on South Dakota’s laws, it will likely pique the interest of other states to drive additional tax revenue. As of today, only 31 states have laws taxing internet sales.
With tax laws varying from state to state, it is important to discuss with a tax advisor the implications this could have on your business’s ecommerce. Rely on your Doeren Mayhew tax advisor to keep you up-to-date as new state laws surface surrounding sales taxes, help you maintain compliance and mitigate tax liability where possible. Contact us today!
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