Tax-Free Internet Sales Are Now Dead

Supreme Court rules states can force online shoppers to pay sales tax

In a 5-4 ruling on Thursday, the Supreme Court decided that states could tax internet sales, even when the internet retailer was not based in that state.

This overturns a decision from 1992 that mandated that states could levy taxes on businesses only if they had a brick-and-mortar presence within that state's borders.

Justice Anthony Kennedy, who wrote the majority opinion, said the physical presence rule put brick-and-mortar businesses at a disadvantage, because they had to charge sales taxes but Internet retailers did not. All three companies sold online merchandise in the state, but did not have a physical location or employees there, and were exempted from collecting sales tax from their South Dakota customers.

Before this ruling, online retailers had to have a physical presence in a state to be subjected to that state's sales tax. Customers in most cases are supposed to pay the tax themselves, but both sides of the debate admit few actually do. Trump's own online store, TrumpStore.com, only collects sales tax in two states, according to The Wall Street Journal. North Dakota, which prevented states from collecting these taxes. It's likely to negate some of the price advantages that come from buying online, as you might guess, but there's also the possibility of creating headaches for smaller e-commerce outfits that might lose a price advantage over heavyweights already paying state sales taxes.

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Forty-five states rely on sales taxes for revenue, and for those states that have no income tax, sales taxes are very important.

"Any adjustment to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress", Roberts wrote in a dissent joined by Justices Stephen Breyer, Elena Kagan and Sonia Sotomayor. Other retailers-including Etsy, eBay, and Wayfair-are also seeing huge stock dips.

Chicago was one of the first areas to impose a so-called Netflix tax but other states and towns have started to tax streaming and video services.

Amazon's stock is down almost a percent since the announcement, Etsy is down 3.12 percent. His administration wrote a brief in defense of South Dakota's position and the president has taken issue with Amazon's tax collection policies over Twitter. In what has been called the "tax case of the millennium" by the National Conference of State Legislatures, South Dakota sued Wayfair, an online furniture retailer, because the shop omitted state sales tax from its orders.

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