The Supreme Court decision on the internet sales tax issue and its aftermath

The U.S. Supreme Court’s decision on Friday (June 21st) regarding the South Dakota vs Wayfair case was a win for brick-and-mortar stores who had long protested they were at a detriment paying sales taxes while many of their online competitors do not. The decision is also good news for states who, in their eyes, were missing out on theoretically, tens of billions of dollars in annual revenue.

In the aftermath of the court’s decision, shares of online retailers fell considerably. Overstock fell 5.7 percent, Etsy and eBay slithered more than 2 percent and Shopify dropped 1 percent, with Amazon down nearly 1 percent.

The Supreme Court’s 5-4 verdict overturned a 1992 High Court precedent set after the Quill v. North Dakota case, that had prevented states from requiring businesses with no physical presence in the state, like out-of-state online retailers, to collect sales tax.

The South Dakota law requires out-of-state online retailers with a turnover of more $100,000 or more than 200 separate transactions to customers in South Dakota to collect sales tax.

How online retailers are impacted after the Internet sales tax goes into effect

This Supreme Court decision could pave the way for other states to adopt a similar law to South Dakota and start trying to collect sales tax from medium-sized and large ecommerce sites.

Retailers such as Amazon, Etsy,, and eBay could well be impacted. Though they may not have been dodging sales tax collection themselves – Amazon has been voluntarily collecting sales tax since last year – they enable other third-party sellers to do so, supported largely by the rulings after the Quill vs. North Dakota case in 1992.

States will now be able to require sellers to collect and remit sales tax, so long as the burden of compliance with collecting out-of-state sales tax is reduced or minimized by the states. But it’s not clear how Amazon will assist third-party sellers with compliance, or who is actually burdened with collecting the sales tax. Amazon Marketplace generates more sales than Amazon itself, and many third-party sellers utilise their Fulfilment Centers, but Paul Rafelson – a law professor at Pace University – says “Amazon can hide behind its marketplace to claim tax exemption because it’s still going to pretend it’s not a retailer – and not responsible for collecting sales taxes.” Amazon isn’t commenting on the ruling.

Chinese company Anker, a big Amazon Marketplace seller which has thousands of employees and a significant international standing, suggested the ruling could affect prices on Amazon and how companies are able to function in the US.

Etsy and eBay are in similar boats and there’s a risk that, without a standardized ruling on a nationwide basis, sales tax collection will become over-complicated and rules will differ in each and every state. Some states like Washington, Pennsylvania, and Minnesota already

require the marketplaces to collect sales tax on behalf of third-party sellers, and others place the burden on the sellers themselves.

There’s a lot of annual tax revenue at stake; up to $13 billion according to the US Government Accountability Office, so it’s a ruling that traditional retailers believe levels the playing field a little more and welcome.

What the immediate future holds after the new tax law

The crux of the matter is how the ruling will be implemented. There’s a real risk that placing the burden on small sellers to collect sales tax would become too complicated and force them out the market, freeing companies like Amazon from the complicated tax collection processes of different states.

The Supreme Court decision only overruled the Quill decision and didn’t create any new law. The case could be contested for years, particularly over the $100,000 annual sales threshold with litigation beginning immediately, state-by-state, deciding how their sales tax laws should be implemented and who should be exempt.

There are over 10,000 state dominions that govern sales tax across the US, with varying sales tax rates and sales tax exemptions across a huge variety of products. Without software tools in place to simplify the process, as the Supreme Court perhaps intended, new state sales tax laws for ecommerce will be incredibly difficult to track.

Donald Trump tweeted “Big Supreme Court win on internet sales tax – about time” after the ruling, and it’s federal legislation that will most likely be required to standardize the sales tax laws. However, with an increasingly gridlocked Congress, it could be some time before these issues are addressed.

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