Published: Thu, June 21, 2018
Technology | By Christopher Mann

Tax-Free Internet Sales Are Now Dead

Tax-Free Internet Sales Are Now Dead

The Supreme Court on Thursday reversed course on a ruling that dates to the mail-order catalogue era known as Quill that limited states to collect sales taxes only from retailers that have a physical presence, or "nexus", in a particular state to require that company to collect sales taxes from its customers.

The Supreme Court said the physical presence rule was "unsound and incorrect".

E-commerce now makes up about 10 percent of USA retail sales, according to the Commerce Department.

E-commerce sales in the fourth quarter of 2017 increased to $119 billion, up more than 3% from the previous quarter and almost 17% from a year earlier, according to U.S. Census Bureau data.

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They had resulted in some companies not collecting sales tax on every online purchase.

Thursday's ruling involves a dispute between the state of South Dakota and Boston-based Wayfair Inc., along with other two other online sellers, Overstock.com Inc. and Newegg Inc. So it passed a law requiring all but the smallest retailers, including Internet companies, to collect taxes on the sales they make in the state, even if they had no physical presence there.

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. Although technically consumers are required to pay sales tax on all purchases, it is practically impossible to collect without the retailer applying it at the point of sale.

States like South Dakota that depend heavily on sales taxes for their revenue are likely to benefit most, with a predicted maximum revenue increase of around 3 percent, according to a Barclays research note.

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The decision has major implications for online retailers, including Amazon.

President Donald Trump has also criticized Amazon, whose founder Jeff Bezos also owns the Washington Post, saying that it does not collect any sales tax.

Amazon, by far the nation's largest online seller, is not a party to the case, since it now has a physical presence in many states, with warehouses, and pays the taxes.

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