US Supreme Court

In a 5-4 decision, the United States Supreme Court on Thursday ruled that states can require online retailers to collect taxes. The decision reverses 50 years of legal rulings that barred states from imposing sales taxes when their residents made a purchase from an out-of-state retailer. 

According to NBC, the ruling was a victory for South Dakota which wanted the Court to uphold its recently passed law imposing an internet sales tax. As the state’s attorney general noted:

Our state is losing millions for education, health care and infrastructure, and our citizens are harmed by an uneven playing field.

In 1967, the Supreme Court said that states couldn’t require mail-order catalog companies to collect sales tax unless they had a physical presence in the state. At the time, the Court said doing so would put an unfair burden on catalog companies since fees vary by state.

The advent of the internet and explosion of online sales changed this, of course.

Writing for the majority, Justice Anthony Kennedy said the physical presence rule put brick-and-mortar businesses at a disadvantage because they had to charge sales taxes but internet retailers did not. That rule “prevented market participants from competing on an even playing field,” Kennedy wrote.

In the dissenting opinion, Chief Justice John Roberts said the internet economy has thrived under the sales tax exemptions. “Any alternation to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress,” he wrote.

What does this mean? Soon, companies like eBay will have no choice but to collect state tax on purchases, if the same item is taxed in a physical store. In other words, get ready to pay much more.

While this is bad news for anyone who makes purchases online, it doesn’t come as much of a surprise. Still, it will be interesting to see where the change makes it more or less likely someone now shops in a brick-and-mortar store. I’d say the convenience of buying online will still play a significant role in the decision-making process.

What say you? Leave your comments below.

The case is South Dakota v. Wayfair, Inc.