Supreme Court closes online sales tax loophole

The U.S. Supreme Court ruled this week that states and cities can collect sales tax from online purchases

The U.S. Supreme Court's decision on online sales tax is viewed as a victory for states, but those with aggressive collection policies, such as NY and California, could be challenged by online retailers.

Beginning in 2014, as part of a compromise, Tennessee started collecting sales tax from online Amazon purchases because the behemoth online retailer had a physical presence in state with warehouses and distribution centers in Chattanooga, Lebanon and Murfreesboro.

Forsyth Mayor Eric Wilson says the ruling is a win-win for local governments.

Previous bills in the Utah State Legislature to require online retailers to collect sales taxes have failed under pushback from the public and taxpayer watchdog groups. Alaska and Montana allow individual cities to collect local sales taxes, according to the Tax Foundation.

Honestly, this shouldn't be surprising to anyone, but it's a bummer nonetheless.

The winners are local brick and mortar businesses, which will be able to compete pricewise with online retail giants.

The 16 states with laws similar to South Dakota's, including IN and ME, are less likely to be challenged.

"I would really love for our government to get behind the idea of small business and when you do something like this it does not encourage small business", Keyton said.

The Supreme Court ruled Thursday in South Dakota's favor after the state sued several online retailers in 2016 based on a separate law seeking to get them to collect the tax.

States can now force you to pay online sales tax
Until that case is resolved, South Dakota has already enjoined itself from enforcing that law on any out-of-state retailers. Supreme Court ruled in a 5-4 decision Thursday that online retailers can now collect sales taxes on out-of-state purchases.

While online shoppers will surely groan about paying more sales tax, Washington County Finance Director Mitch Meredith said 100 percent of those dollars, at least in Washington County, will go toward education. The decision in Thursday's South Dakota vs Wayfair ruling uses economic nexus with minimum thresholds as the standard for substantial nexus.

States that rely more heavily on sales tax - as opposed to personal income tax, for instance - "are the big winners here and could see real budget gains if they follow South Dakota's example", said Fitch Ratings analyst Stephen Walsh.

"The Supreme Case opens the opportunity for Oklahoma to craft more laws in the future that applies to a broader range of entities that are out of state", she said.

This week's ruling worries some small retailers that having the extra sales tax charge could drive away customers. "I think it's overall a positive".

Joe Henchman, who runs the state tax policy project at the Tax Foundation*, a conservative think-tank that supports the Wayfair decision, has been talking with officials from states who are looking to tax online sales in a way that complies with it.

We asked Campbell who would have to collect taxes for transactions with South Dakota residents and when. "While we don't know how much this will specifically mean for our sales tax revenue, we are certain it will have a positive impact on our sales tax revenue".

But as online retail proliferated and technology made tax compliance somewhat simpler, these decisions created an odd and growing tax loophole: Shop at your corner store and you had to pay sales tax; buy online, and you often could avoid it.

The ruling has angered many small online retailers and advocates for small companies because it will increase their expenses, mostly from the cost of software and services to help sellers collect the taxes and send the money to state authorities.

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