Supreme Court closes online sales tax loophole

The eBay Inc. application is seen on an Apple Inc. iPhone in this arranged

Supreme Court closes online sales tax loophole

USA states could reap billions in online sales tax revenue and buttress their budgets after the nation's top court ruled on Thursday that e-commerce companies could be forced to collect the money, even if they have no physical presence in a state.

On Thursday, they got that even field when the U.S. Supreme Court ruled on Quill Corporation v. That precedent dates to 1967, when the court said mail-order retailers were obligated to collect sales taxes only in states in which a company had a physical presence, such as a retail store or distribution center.

Still, the group says federal legislation is necessary to spell out details on how sales tax collection will take place, rather than leaving it to each of the states to interpret the court's decision.

While this ruling is beneficial to state governments, it stands to have a negative impact on retailers and consumers alike. Small and medium size businesses are most negatively impacted These business are faced with a huge problem because compliance is complicated.

"This decision is not the end of the days for this case", said Jamie Yesnowitz, a National Tax Office leader at accounting firm Grant Thornton. That earlier ruling placed the responsibility of paying the online sales tax on customers who generally did not realize they owed it.

This week's court decision lets states close that loophole and will ultimately lead to a more rational tax system - which will be good for the public, even if it means missing out on deals from time to time. If a company doesn't expect to reach the threshold in a state, it may decide not to collect tax. "I don't have to drive", said Thornsberry. "This is a big win for states that now they are able to tax more broadly".


In any event, today's decision is a victory for bricks and mortar retailers who have built stores in Hawaii and have employed local residents.

At a local retailer, a consumer is going to pay a six percent tax rate.

"So many of us who sell on platforms like Etsy are juggling all the time, families and businesses, or potential businesses along with day jobs", says von Braun, whose Etsy shop sells original artwork. Previously, these businesses had to charge state sales taxes on top of their base price in what many consider an unfair advantage since online retailers largely ignored the requirement.

The decision reverses a 26-year-old standard that allowed states to levy sales taxes on e-commerce sales only if the sellers had physical locations in the state. The ruling was praised by some in the retail industry for clarifying how sales taxes should be handled in the ecommerce era.

"It really is a disadvantage to local brick and mortar stores". When you create a way for people to avoid the tax, you distort their behavior (pushing them to buy online when they might otherwise buy in a store) and you reduce tax collections.

While almost impossible to determine how much revenue Johnson City or Washington County loses to online sales, state officials estimate Tennessee loses between $200 million and $450 million annually.

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