States have broad authority to force online retailers to collect potentially billions of dollars’ worth of sales taxes, the U.S. Supreme Court ruled on Thursday, siding with South Dakota in its high-profile fight with e-commerce companies.
The justices, in a 5-4 ruling against Wayfair, Overstock.com and Newegg, overturned a 1992 Supreme Court precedent that had barred states from requiring businesses with no “physical presence” in that state, like out-of-state online retailers, to collect sales taxes.
The court, in a ruling authored by conservative Justice Anthony Kennedy, revived a 2016 South Dakota law that required larger out-of-state e-commerce companies to collect sales tax, a mandate that the online retailers fought in court.
The ruling is likely to lead other states to try to collect sales tax on purchases from out-of-state online businesses more aggressively. It also likely will lead to many consumers paying more at the online checkout. Forty-five of the 50 states impose sales taxes.
Opposing the law
Internet companies opposed to the South Dakota law appealed. They said local tax laws vary widely across the nation and calculating sales taxes for 10,000 local taxing jurisdictions remains a daunting task.
Retailer eBay warned that taxing Internet sales would place “crushing burdens on small online businesses, causing many to curtail operations and damaging the national economy.”
