Online Sales Tax

Supreme Court Ruling May Make Online Buys Pricier

Justices allow states to collect sales tax

By Newser Editors and Wire Services

Boxes move down a conveyor belt during a tour of the Amazon fulfillment center in Aurora, Colo.   (AP Photo/David Zalubowski)

The Supreme Court delivered a huge decision Thursday about online shopping, ruling that states can collect sales taxes on internet purchases. The 5-4 decision in Wayfair vs. South Dakota overturns a 1992 ruling—written in the age of mail-order catalogs—essentially declaring that states could only collect taxes on businesses that had a physical presence within their borders. The new ruling is seen as a win not just for states, who say they have missed out on billions in revenue, but also for brick-and-mortar stores that have long complained of being at a disadvantage, reports the Wall Street Journal.

• Amazon, others: Online retailers such as Wayfair, Overstock, Etsy, eBay, and Newegg were taking a hit on share prices. Amazon, too, though to a lesser extent because it already collects state sales taxes on direct purchases. It doesn't require independent merchants on its site to do so, however. Generally, shares of online retailers were down and those of brick-and-mortar chains such as Target were up, reports MarketWatch.

• Your bottom line: "If you are buying a lot of furniture that you are having delivered to your house from a pretty big seller, you are going to start paying taxes," a National Retail Federation exec tells CNNMoney. But if you buy smaller artisanal items from Etsy or eBay, for example, the ruling may not matter as much because the decision is likely to affect bigger-ticket online retailers. Much remains unclear, however, until states begin revising laws and setting thresholds.

• Seeking clarity: Politico notes that both supporters and critics of the decision now want Congress to provide some clarity. "Remote retailers—many of whom are small businesses—may soon be forced to keep track of the thousands of taxing jurisdictions across the country, many with their own rates, bases, rules and regulations," says an official with the American Legislative Exchange Council. "Congress remains the only solution to this threat."

• The votes: They didn't break down along the familiar lines: Anthony Kennedy wrote the majority decision, joined by Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito, and Neil Gorsuch, per USA Today. Chief Justice John Roberts dissented, arguing that online sales were such an important part of the economy that only Congress should change the rules. He was joined by Stephen Breyer, Sonia Sotomayor, and Elena Kagan.

• Aiming at Wayfair: Kennedy's opinion singled out online furniture seller Wayfair, notes the New York Times. "Its advertising seeks to create an image of beautiful, peaceful homes, but it also says that 'one of the best things about buying through Wayfair is that we do not have to charge sales tax,'" Kennedy wrote. "What Wayfair ignores in its subtle offer to assist in tax evasion is that creating a dream home assumes solvent state and local governments." (In a statement, Wayfair says it already collects sales taxes on most orders and doesn't expect to see a big hit to business.)

• Where it doesn't matter: Five states do not have sales taxes at all, per the Tax Foundation: Alaska, Delaware, Montana, New Hampshire, and Oregon. Of the rest, 31 states already have some kind of online sales tax, and it's safe bet that others will join the ranks.