Supreme Court To Rule On Sales Tax Of Online Purchases

Supreme Court To Rule On Sales Tax Of Online Purchases

Supreme Court To Rule On Sales Tax Of Online Purchases

Tomorrow, the Supreme Court will hear a case that will determine who collects sales tax for online purchases.

This law was challenged by the state of South Dakota as it seeks to collect sales taxes from out-of-state internet retailers.

"I think you're going to see a flood not only of demands for ongoing tax collection but retroactive audits", said Andy Pincus, a Washington lawyer who filed a brief on behalf of EBay and a group of small businesses that oppose the states.

A ruling favouring South Dakota could help small brick-and-mortar retailers compete with online rivals while funnelling up to $18 billion into the coffers of the affected states, according to a 2017 federal report. Although all collect taxes in other parts of the country - 25 states for Wayfair, eight for Overstock and six for Newegg - they've been able to skirt South Dakota because they don't have a physical presence there.

The counter argument is that it is very hard for retailers to maintain sales tax accounts in all states they ship to.

President Donald Trump has argued Amazon doesn't collect sales taxes; even though the company does.

Based on a prevailing Supreme Court law, retailers can be forced to collect taxes only in states where the company has physical presence.

Initially meant to regulate catalog-based sellers, the ruling has been challenged again and again by states seeking to claim their fair shake of online sales.

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States would capture more of that tax if out-of-state sellers had to collect it, and states say software has made sales tax collection simple.

Retailers fighting the states say they would be hit with heavy costs of complying with rules for thousands of products in thousands of cities, counties and even airports that serve as their own taxing jurisdictions.

The case now before the Supreme Court involves South Dakota, which has no income tax and relies heavily on sales tax for revenue.

The state sued a group of online retailers after the law was enacted to force them to collect the state sale taxes, with the aim of overturning the precedent.

It's unclear how the justices might align on the question this time.

South Dakota says the high court's previous decisions don't reflect today's world.

"Today's online giants do not need or deserve the special tax treatment that the Court gave mail order catalog companies a half century ago", Deborah White, General Counsel for the Retail Industry Leaders Association, said in a statement last month. The court first adopted its physical presence rule on sales tax collection in a 1967 case dealing with a catalog retailer. In addition, they said, the court can write a ruling that "applies prospectively only for all retailers and taxpayers". But three justices - Neil Gorsuch, Clarence Thomas and Anthony Kennedy - have suggested a willingness to rethink those decisions.

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