Supreme Court Decides Wayfair Online Sales Tax Case

Pool  Getty Images

Pool Getty Images

States have broad authority to force online retailers to collect potentially billions of dollars worth of sales taxes, the U.S. Supreme Court ruled on Thursday, siding against e-commerce companies in their high-profile fight with South Dakota.

The decision is a big win for major corporations such as Apple and Walmart, who generally pay sales tax due to their "physical presence" in most states throughout the country.

South Dakota then filed a lawsuit to declare that the new law was valid, a suit that eventually found its way to the Supreme Court. Amazon.com Inc shares fell as much as 1.9 percent before paring losses.

During an interview with FOX Business in April, National Economic Council Director Larry Kudlow said changing the law could level the playing field between traditional and e-commerce retailers.

The Trump administration had urged the justices to side with South Dakota.

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.

"There was a time when we wanted the United States, as a matter of policy, to protect nascent internet businesses by keeping down the tax burden, but that time is long gone", he said.

South Dakota has estimated that it could take in up to $50 million a year in additional revenue with these taxes being collected.

Only five states do not have a state-wide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.

In the digital era, the costs of complying with different tax regimes "are largely unrelated to whether a company happens to have a physical presence in a state", Kennedy wrote. 106, §5. Third, South Dakota is one of more than 20 States that have adopted the Streamlined Sales and Use Tax Agreement.

Although in the past Americans may have purchased online to avoid paying sales tax, they are increasingly shopping online to get items quickly and without having to leave the house, retail experts say.

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