Supreme court rules in favor of sales tax on e-commerce sites

After 26 years, the Supreme Court has finally overruled a ban on e-commerce sales tax, freeing up states to make tens of billions of dollars more in revenue.


June 22, 2018

 

On Thursday morning, in a 5-4 ruling, the Supreme Court cleared states to collect sales tax from online retailers, even if those companies don’t have a physical presence in the state. 

Big online retailers have managed to avoid paying sales tax since the court’s initial decision in 1992 stating that a company does have to have a physical presence in a state to be taxed.

Now the court has changed their tune

In their defense, a lot has changed since ’92. According to Justice Anthony M. Kennedy, the initial ruling was made at a time when mail-order sales totaled $180m. 

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“Last year,” Kennedy wrote, “e-commerce retail sales alone were estimated at $453.5B. Combined with traditional remote sellers, the total exceeds half a trillion dollars.”

Regardless, brick-and-mortar businesses have long complained about the disadvantage of having to charge sales taxes while many of their online competitors do not.

States aren’t the only winners here

As Bloomberg reports, this broader taxation will let state and local governments collect an extra $8B to $23B a year.

South Dakota, for example, requires retailers with more than $100k in sales or 200 transactions annually in the state to pay a 4.5% tax on purchases.

But, innovators in the fintech space also stand to win big: The stock for Avalara, a sales tax automation company, skyrocketed 30% upon the ruling.

And, Amazon isn’t the only loser

Shares in Amazon were down 1% after the news broke, but, at $1,730 a share, it’s safe to say they’ll be just fine.

It’s the smaller e-tailers that are feeling the pinch: EBay stock fell a whopping 12.6%, the popular home goods seller, Wayfair, fell 9.5%, and Etsy fell 5.7%. 

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