In a blow to huge billion dollar online retailers such as Amazon and eBay, the Supreme Court has ruled that states can impose a tax on goods and services ordered online.
The court’s 5-4 ruling, issued Thursday, overturns a 1992 decision that held states can only tax businesses with a physical presence in the state. The 1992 decision, the court found, was “unsound and incorrect,” and unfairly penalized traditional brick-and-mortar retail outlets.
South Dakota, which passed a law in 2016 taxing out-of-state online retailers, asked the court to overturn its earlier decision, an appeal supported by more than 40 states and the Trump administration.
Under South Dakota’s law, online retailers with more than $100,000 in annual sales or more than 200 transactions in the state are required to pay a 4.5 percent sales tax on all purchases. South Dakota does not collect income tax, and therefore relies heavily on sales taxes to keep its coffers full.
According to a federal report, the Supreme Court’s decision could see states netting around $13 billion in taxes annually. Each state will now have to pass its own legislation to tap into that revenue stream. In South Dakota alone, a state with a population of less than 1 million people, The Department of Revenue estimates that the state government could take in up to $58 million annually.
Justice Clarence Thomas, who ruled in favor of striking out the 1992 law, said that a “quarter century of experience has convinced me” the Supreme Court’s earlier decision was no longer justified, adding that it was “never too late” to arrive at a better position.
Justice John Roberts Jr. wrote the dissent. He argued that the court should not regulate e-commerce.
“E-commerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule,” he wrote. “Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress.”
The news sent Amazon’s share price tumbling. As part of an ongoing spat with Amazon’s owner, Jeff Bezos, President Donald Trump has repeatedly accused the online retail giant of dodging taxes and putting physical retailers out of business.
I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!
— Donald J. Trump (@realDonaldTrump) March 29, 2018
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