Supreme Court Rule Could Cost Consumers

The U.S. Supreme Court made a decision on June 21, 2018 that will allow states to collect sales taxes on purchases from online retailers, even if that company doesn’t have a physical presence in that state.

The court overturned a longstanding rule that states can collect sales taxes only on transactions if the retailer has a “bricks and mortar” presence in that state. The decision, South Dakota v. Wayfair, Inc., could allow more states to impose sales taxes on companies that operate entirely online.

“Statutes of this sort are likely to embroil courts in technical and arbitrary disputes about what counts as physical presence,” Justice Anthony Kennedy said in the opinion. Kennedy also said that the rule makes no sense, and that “this Court should not maintain a rule that ignores these substantial virtual connections to the State.”

Brick-and-mortar businesses have long complained they are put at a disadvantage by having to charge sales taxes while many online competitors do not. The decision was also a victory for states that have said that they are missing out on tens of billions of dollars in annual revenue. One federal report released last year found that state and local governments lost out on $8 to $13 billion in tax revenue because they couldn't collect sales taxes from online retailers.

Wayfair, the online furniture company named in the case, said in a statement the decision would not have a noticeable impact on their sales because they already collect sales tax on most transactions, but that it could impact retailers that don't already have that in place. Some retail leaders said the decision could raise prices for consumers by increasing sales taxes.

The Auto Care Association applauded the decision. It had filed an amicus brief with other retail groups urging the Supreme Court to hear the case based on the price advantage that the current system provided on-line sellers.

“This is an important decision for many of Auto Care’s retail members and we are pleased that the Supreme Court saw the unfairness in the current system and determined to make everyone play by the same rules,” said Aaron Lowe, senior vice president, regulatory and government affairs, Auto Care Association. “We hope that implementation of the sales tax will be done uniformly across state lines to ensure a fair and efficient system of tax collection.

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