June 21st, 2018

SCOTUS overturns 1992 ruling, allows states to collect online sales tax regardless of physical presence

See our original article about South Dakota v Wayfair here

Today's 5-4 decision in South Dakota v Wayfair may pave the way for sales tax collections on internet sales across the country. Overturning a 1992 ruling prohibiting the imposition of sales tax without a physical presence, the Court ruled that South Dakota's law was crafted in a way that did not burden interstate commerce.

The ruling was not a blanket approval for charging sales tax on all internet sales, however. From Justice Kennedy's opinion:

... South Dakota’s tax system includes several features that appear designed to prevent discrimination against or undue burdens upon interstate commerce. First, the Act applies a safe harbor to those who transact only limited business in South Dakota. Second, the Act ensures that no obligation to remit the sales tax may be applied retroactively ... Third, South Dakota is one of more than 20 States that have adopted the Streamlined Sales and Use Tax Agreement.

The ball is now in the state legislatures' court to decide whether to follow South Dakota's lead. The impact could be sizable for state and local governments (it's estimated that half of Amazon's sales were not eligible for sales tax under the prior ruling).

For more reading about the case and today's ruling, see here, here, and here.