Supreme Court rules for retail common sense

Press enter to search
Close search
Open Menu

Supreme Court rules for retail common sense

By Gina Acosta - 06/21/2018
The Supreme Court ruled Thursday that states can compel retailers to collect sales taxes even if they don't have a physical presence in the state. 

It may have taken two decades, but a ruling by the U.S. Supreme Court finally eliminates a pre-Internet sales tax loophole that gave online only retailers a competitive advantage.

The Supreme Court ruled Thursday that states can compel retailers to collect sales taxes even if they don't have a physical presence in the state. The ruling overturned a 1992 Supreme Court precedent. Shares of Amazon, Wayfair, Etsy and eBay all dipped in late trading Thursday immediately following the ruling.

The National Retail Federation, RILA and its sister organization, the Retail Litigation Center (RLC) all celebrated the decision Thursday.

“Retailers have been waiting for this day for more than two decades," said NRF President and CEO Matthew Shay. "The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well. This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both. 

The court this morning upheld a 2016 South Dakota law that requires online merchants with more than $100,000 in annual sales to state residents or 200 transactions with state residents to collect sales tax. 

NRF argued in a friend-of-the-court brief last year that the court’s 1992 Quill Corp. v. North Dakota decision was outdated and that sales tax collection is no longer the burden it might once have been due to changes in technology. In the brief, NRF cited a wide variety of software available to automatically collect the sales tax owed, much of its available free or at low cost. 

NRF and other retail groups said in a second brief filed this year that lack of uniform collection is “inflicting extreme harm and unfairness” on local retailers by “distorting the retail market in favor of absentee ecommerce.” 

 "Today's decision culminates years of tireless work by the retail community to reverse a pre-Internet era rule that distorts free markets and puts local brick and mortar stores at a competitive disadvantage with their online-only counterparts," said Deborah White, General Counsel for the Retail Industry Leaders Association and President of the Retail Litigation Center. "This was the right case and the right time for the Court to act, and we couldn't be more pleased with the outcome."

Even with the favorable ruling, NRF believes federal legislation is still necessary to spell out details on how sales tax collection will take place rather than leaving it to each of the states to interpret the court’s decision. NRF has been a leading voice for equal sales tax rules for years, saying that Quill gave online sellers an unfair price advantage over local merchants. 

“Today’s US Supreme Court decision permitting states to force online shoppers to pay sales tax for their purchases is a victory for brick-and-mortar retailers,” stated Moody’s Lead Retail Analyst Charlie O’Shea. “In the case of Amazon, its proprietary sales will be largely unaffected as it is already collecting sales tax in “sales tax” states in which it operates a physical presence, however the impact on its growing third-party business could be meaningful as, up until now, a chunk of these sales have not been taxed. As Amazon has continued to thrive despite losing the obvious pricing benefit it used to have from not collecting sales taxes in its proprietary business, it remains to be seen if this new ruling will have any real impact on its third-party sales, or if the convenience for shoppers and growing benefits to Prime members will mitigate the pricing shift.” 

Related Topics