SCOTUS Says States Can Require Retailers To Collect Sales Taxes

by Thom Forbes @tforbes, June 22, 2018

The Supreme Court yesterday decided that states have the right to force their residents to pay local sales taxes when they shop online, overturning two precedents that save small retailers from a lot of grief, leave billions of dollars in the collective pocket of consumers but, arguably, have helped to contribute to the demise of malls and small-town shops.

“The losers will likely be the millions of small-business owners who sell on marketplaces such as Amazon.com and eBay Inc. … [who] may now need to collect and remit sales taxes in the 45 states that have them. That could be an expensive and time-consuming task, especially if new rules differ between states,” observes Laura Stevens for the Wall Street Journal.

“Trying to follow all the thousands of laws of tax jurisdictions across the country would put us out of business. That is all I would do all day,” Cyndi Zlotow, who sells about $250,000 annually of apparel and other goods on eBay, Amazon and Etsy, tells Stevens.

“The court effectively overturned a system that it created. In 1992, the court ruled in Quill Corporation v. North Dakota that the Constitution bars states from requiring businesses to collect sales tax unless they have a substantial connection to the state. The Quill decision helped pave the way for the growth of online retail by letting companies sell nationwide without navigating the complex patchwork of state and local tax codes,” report Adam Liptak, Ben Casselman and Julie Creswell for the New York Times.

“But as online retailing has grown, the dynamics have shifted. Online sellers are no longer scrappy upstarts competing with more established businesses. Amazon had $119 billion in revenue from product sales last year, making it bigger than all but the largest traditional retailers,” they continue.

"The court's 5-4 split on South Dakota v. Wayfair didn't break along traditional ideological lines. [Anthony] Kennedy was joined by fellow conservative-leaning justices Samuel Alito, Neil Gorsuch and Clarence Thomas, along with usually liberal justice Ruth Bader Ginsburg,” point out Politico’s Bernie Becker and Josh Gerstein. “Chief justice John Roberts, normally a conservative, was joined in a dissent by liberal-leaning justices Stephen Breyer, Elena Kagan and Sonia Sotomayor that asserted Congress should take the lead on the online sales tax issue.”

Justice Kennedy wrote in his opinion that “the rise of the internet had made the error of the court's previous decisions ‘all the more egregious and harmful.’ At the time of those rulings, the Supreme Court ‘did not have before it the present realities of the interstate marketplace, where the Internet's prevalence and power have changed the dynamics of the national economy,’” Becker and Gerstein continue.

Neil Saunders, managing director of GlobalData Retail, points out that there well over 10,000 tax jurisdictions across the U.S., with various exemptions and rates for different products within each.

“As unfortunate as these problems and consumer losses are, in our view the Supreme Court's ruling and negation of previous judgments which prevented the taxation of some online transactions by states, is correct and valid. The court cannot and should not concern itself with practicality. It must only concern itself with the law and the Constitution,” he writes in an email.

But, he adds, “we do not expect this to be the final ruling by the court, as retailers and states are likely to raise further challenges on other grounds.”

“This is a victory for common sense and the economic realities of this century,” Jerry Storch, former CEO of both Toys R Us and Hudson's Bay and former vice chairman of Target, said on CNBC’s “Squawk Alley,” reports CNBC’s Ariel Shapiro. “The previous law rewarded what was really a form of tax evasion that accelerated the demise of Main Street and all brick-and-mortar retailers.”

One of the more bizarre reactions to yesterday’s ruling came from Luke Kenley, a former Republican state senator in Indiana, who “is claiming victoryin his 15-year battle to force retailers to charge sales tax on internet sales to Indiana consumers,” James Briggs and Richard Wolf report for the Indianapolis Star.

“I’m going to celebrate today,” Kenley tells them. “I'm probably the only one that is. I'm sure all the Millennials who shop online are not going to be celebrating.”

As if the “brainiest, best-educated generation ever” didn’t already have enough things to not celebrate.

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