Published: Tue, April 17, 2018
Business | By Kate Woods

Online Purchase Sales Tax Fight Heads to SCOTUS

Online Purchase Sales Tax Fight Heads to SCOTUS

North Dakota-established that states could only collect sales tax from a retailer with an established physical presence within their boundaries.

It does seem fair, because as it now stands, certain retailers have an unfair advantage over others.

Small retailers are not collecting state taxes from online shoppers unless the store has a physical presence in the state where the buyer lives.

At the time, the court cited state sales tax laws that were too complicated for retailers to know how much to collect unless they had a physical presence in that specific state. However, the vast majority of purchasers do not pay tax on these transactions (98-99%), and it's likely that many aren't even aware of this law.

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Retailers like Amazon, Walmart, Target, Apple and other major companies do now collect sales tax via their ecommerce channels, so that's not what this case is after.

On Tuesday, the Supreme Court is scheduled to hear South Dakota vs. Wayfair to determine whether to overturn that 26-year-old ruling.

The sales tax allocations from the state are based on sales made in February by businesses which report tax monthly.

A reversal could mean that all online retailers must collect sales tax everywhere.

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Retailers that have brick-and-mortar stores and are already collecting taxes are backing South Dakota.

According to the Government Accountability Office, online marketplaces could have collected between $3.9 billion and $6.2 billion in state sales tax.

The Trump administration will join the oral argument in favor of online retailers being required to collect sales taxes everywhere.

And while the issue is portrayed as one of fairness for small brick-and-mortar retailers that have to compete against online retailers, experts say those small retailers could be among the ones that get hurt.

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South Dakota sued top online retailers Wayfair, Overstock, and Newegg, for failing to comply to the said state tax law. "Now it might be something else that is going to take them back a step".

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