The US Supreme Court recently ruled on the South Dakota v. Wayfair case, and the results did not go the way eCommerce companies were hoping. The decision has cleared away any significant obstacles that were in place to slow or prevent states from requiring ‘e-tailers’ to collect sales taxes.
The legal battle started back in 1992 with a US Supreme Court decision in the Quill v. Heitkamp decision that said that as long as an online retailer did not have any physical presence in a state, they did not have to collect sales taxes for that state. This has helped to make it so major online retailers typically don’t have to charge taxes, thus giving them a big advantage over physical stores.
Of course, the physical stores haven’t been happy about this, and have been trying to fight it where possible. The states themselves have also been filing suits to dispute that decision because it is costing them millions in money coming into the individual states.
Up until this most recent decision, individual tax payers were technically supposed to pay a Use Tax on anything that they bought online. Not surprisingly, almost nobody did this.
The court decision is a huge step toward making it easier for states to require taxes to be collected, but individual states will still have to pass laws on how that will need to be done. Some states including California, South Dakota, and Iowa have already put bills in place to move forward with this effort.
This will hurt online retailers as they will eventually not only have to charge more with the inclusion of taxes, but will also have to update their systems to calculate taxes based on the state of each of their customers.