In a decision that will impact online shopping for all Americans, the U.S. Supreme Court on Thursday upheld a South Dakota law which required online companies to collect and remit state sales taxes, even if that company did not have a ‘physical presence’ in the state.
“Each year, the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States,” wrote Justice Anthony Kennedy, in a 5-4 decision.
“These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause,” the majority wrote.
The ruling overturned previous Supreme Court precedents from the 1992 Quill case, which had theoretically made internet sales a tax-free zone in certain situations; over the years, that changed, but this ruling will now require online sellers to collect sales taxes for all states.
It was quickly denounced by some in the Congress.
“This decision creates mountains of red tape for small businesses in New Hampshire and across the country, hurting their ability to grow and create jobs by selling on the internet,” said Sen. Jeanne Shaheen (D-NH).
But others on Capitol Hill saw it much differently.
“This ruling clears the way for our retailers to compete on a level playing field with internet giants,” said Sen. Dick Durbin (D-IL).
“I am glad the Court realized the importance of closing this gaping loophole in our tax law,” said Sen. Mike Enzi (R-WY).
The decision allows state and local governments now to press online retailers to collect sales tax revenues – which some experts believe could bring in billions of dollars in additional revenues – before, those taxes could only be collected if the online seller had a ‘physical presence’ – a store – in that state.
Maybe the most interesting part of the ruling was the lineup of Justices, as Justice Ruth Bader Ginsburg joined with Kennedy, and three more conservative Justices to provide the majority, while the Chief Justice sided with the remaining three more liberal Justices.
“This Court ‘does not overturn its precedents lightly,'” Chief Justice John Roberts wrote for the minority, as he said the Court was wrong to change the way states can deal with sales taxes and online sales, arguing the Legislative Branch should take that step.
“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,” Roberts wrote.