by Scott French and Elizabeth Slattery
June 25, 2018
In a major blow to the e-commerce industry and small businesses, the Supreme Court held Thursday that out-of-state online retailers can be required to collect and remit state sales taxes wherever they sell their wares.
In a 5-4 decision in South Dakota v. Wayfair, the high court threw out a longstanding precedent that prevented states from reaching beyond their borders to regulate businesses that have no connection to that state, such as having employees or a storefront in that state. Chief Justice John Roberts authored a powerful dissent, highlighting the need for congressional action in this area.
In the ruling, the court abandoned a rule stretching back to 1967 that required a company to have a physical presence in a state to be subject to its sales taxes. The court maintained its physical presence rule against a previous challenge in 1992, offering an impetus to the fledgling e-commerce industry in the early 1990s. Since then, the internet retail market has grown to almost $500 billion in 2018.
Adding uncertainty about sales taxes and changing the way that the e-commerce market operates could seriously hamper the growth of the industry. As Roberts pointed out in his dissent, “E-commerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule.”