Internet retailers:
SCOTUS says prepare to collect sales taxes for all states.
In a 5-4 decision yesterday, the U.S. Supreme Court ruled that internet retailers can be required to collect sales in states where they have no physical presence.
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Since 1992, from the landmark case of Quill Corporation v. North Dakota, retailers that did not have “substantial nexus,” defined as a physical presence, in a state, did not have to charge that state’s sales tax. However, with yesterday’s decision, all of that has changed.
Held: “Because the physical presence rule of Quill is unsound and incorrect, Quill Corp. v. North Dakota and National Bellas Hess. Inc. v. Illinois are overruled.”
The majority takes the position that, “Physical presence is not necessary to create a substantial nexus.”
Substantial nexus can be achieved through a “pervasive Internet presence.”
“Rejecting the physical presence rule is necessary to ensure that artificial competitive advantages are not created by the Court’s precedents.”
“Modern e-commerce does not align analytically with a test that relies on the sort of physical presence defined in Quill.”
The minority’s position: “The Court argues in favor of overturning Quill because the “Internet’s prevalence and power have changed the dynamics of the national economy.” But, this is the very reason I oppose discarding the physical-presence rule. 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. Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress. The Court should not act on this important question of current economic policy, solely to expiate a mistake it made over 50 years ago.”
Writing for the majority was Justice Anthony M. Kennedy, joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel A. Alito and Neil M. Gorsuch.
Writing for the dissent was Chief Justice John G. Roberts, Jr. joined by Justices Stephen G. Breyer, Sonia Sotomayor and Elena Kagan.
So, what does this mean going forward? The states have claimed that Quill has cost them to lose annual revenues anywhere between $8 billion and $33 billion. Therefore, be prepared for the states to require retailers to start collecting on sales into their states. If you sell online, you will now become a tax collector for the states that you sell into. Purchasers, be prepared to pay more for the products you buy.