Online retailers have long held an advantage over their brick-and-mortar counterparts when it comes to collecting taxes from consumers but that may now be coming to an end due to a recent decision from the U.S. Supreme Court.
In the case of South Dakota v. Wayfair, the court effectively overturned a decision made back in the 1992 case Quill Corporation v. North Dakota that states were constitutionally not allowed to require businesses to collect sales tax unless they had a substantial connection to the state. Online retailers often used this decision to expand their businesses and sell throughout the U.S. while skirting the complex tax codes within each state and city. With the decision made in South Dakota v. Wayfair, state and local governments can now better enforce their tax codes and even the playing field between online and brick-and-mortar stores.
With brick-and-mortar coming under attack in recent years and losing out to online retailers, this decision couldn’t come at a better time. This could help encourage some consumers to seek out local businesses over online retailers if those consumers were lured to e-commerce by a lack of taxes. States will also benefit as they will now be able to count on more taxes being collected that weren’t previously. Justice Anthony M. Kennedy, who wrote for the majority in the decision, reported that the Quill decision caused states to lose annual tax revenues up to $33 billion and that the Quill decision put local and interstate businesses with physical presence at a “competitive disadvantage relative to remote sellers.”
Chief Justice John G. Roberts was part of the dissent, saying that changing the rules established by the Quill decision had the “potential to disrupt the development of such a critical segment of the economy” and that with so much at stake it should be Congress that acted on changing how taxes were handled by the e-commerce segment, not the U.S. Supreme Court.
