The Supreme Court ruled Thursday that states can collect state sales taxes from online retailers on consumer purchases. The decision overruled a decades-old precedent that had protected out-of-state sellers from being required to collect such taxes.
States stand to gain billions of dollars with the ruling, which marks a new era in an Internet economy that has boomed over the past decade and become a dominant force. Home goods seller Wayfair and other e-commerce companies had attempted to challenge a South Dakota law that levies taxes on purchases made through certain online retailers.
The decision will also have dramatic consequences for small online retailers that do business in many states.
“The Internet’s prevalence and power have changed the dynamics of the national economy,” Justice Anthony Kennedy wrote for the majority.
The 5-4 decision defied the usual conservative-liberal lineup with Kennedy joined by liberal Justice Ruth Bader Ginsburg and conservatives Samuel Alito, Neil Gorsuch and Clarence Thomas. The conservative chief justice, John Roberts, dissented along with liberals Stephen Breyer, Sonia Sotomayor and Elena Kagan.
Forty-five states rely on sales taxes for revenue, and for states that have no income tax, sales taxes are very important. Estimates of how much money the states are losing vary dramatically, ranging from more than $200 billion over five years to a recent estimate from the Government Accountability Office of between $8 billion and $13 billion per year.
Indeed, Justice Gorsuch once called the current system “a judicially created tax shelter.”
And, in 2015, Justice Kennedy suggested that he was prepared to overrule the Supreme Court’s 1967 and 1992 decisions in light of modern realities.
For much of the last decade, states have been pressing Congress to fix the problem, to pass a bill that levels the playing field. But Congress, buffeted by anti-tax groups, has walked away from the issue.