By DAVID WILLIAMS
WISH-TV | wishtv.com
Soon, you could pay more for everything you buy online.
The U.S. Supreme Court on Thursday cleared the way for states to force online retailers to collect sales tax.
Consumers will be the one to foot that extra money.
The Boomerang Boutiqe on Massachusetts Avenue in downtown Indianapolis is Felicia Kiesel’s livelihood. The brick and mortar’s thriving, but Kiesel, the owner, said, “I’ve spent a lot of time and money building my online store. All my clothes are online.”
Her virtual store’s been online for the last few years.
“I do a lot in Washington state for whatever reason,” Kiesel said. “I do California, Illinois, several of the Midwest states. New York’s a big one for me as well.”
But, she said, those customers don’t always pay sales tax.
Kiesel said her website vendor automatically figures whether or not her customers pay their state sales tax.
“Since I don’t have as many online sales, it was just easier to clump it all together and pay the 7 percent,” she said. “Some of those online state sales (tax) was just coming out of pocket, and I was just paying it to Indiana.”
State Rep. Tim Brown, a Republican from Crawfordsville, said Thursday by phone, “The Supreme Court ruling will allow us to go to these retailers and have them collect the sales tax that is due to the state.”
Brown said lawmakers passed a law in 2017 that basically created a foundation for the state to collect sales tax on every online purchase.
“For retailers who do most of their selling of goods online, if you have more than 2,000 transactions within the state or $100,000 worth of sales, you’re required to collect sales tax from Indiana residents and remit it to the state of Indiana,” the state representative said.
But, Brown said, less than 1 percent of Hoosiers actually went back and paid sales tax on their online buys when they did their yearly taxes. So what does this mean for you?
“It’ll be depending on how the (Indiana) Department of Revenue implements rules and is ready to accept the remittance from out-of-state online retailers,” the lawmaker said.
The Supreme Court’s 5-4 decision overruled a pair of decades-old decisions that states said cost them billions of dollars in lost revenue annually. The decisions made it more difficult for states to collect sales tax on certain online purchases, and more than 40 states had asked the high court for action. Five states don’t charge sales tax.
The cases the court overturned said that if a business was shipping a customer’s purchase to a state where the business didn’t have a physical presence such as a warehouse or office, the business didn’t have to collect sales tax for the state. Customers were generally responsible for paying the sales tax to the state themselves if they weren’t charged it, but most didn’t realize they owed it and few paid.
Justice Anthony Kennedy wrote that the previous decisions were flawed.
“Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States,” he wrote in an opinion joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch. Kennedy wrote that the rule “limited States’ ability to seek long-term prosperity and has prevented market participants from competing on an even playing field.”
The ruling is a victory for big chains with a presence in many states, since they usually collect sales tax on online purchases already. Now, rivals will be charging sales tax where they hadn’t before.
Big chains have been collecting sales tax nationwide because they typically have physical stores in whatever state a purchase is being shipped to. Amazon.com, with its network of warehouses, also collects sales tax in every state that charges it, though third-party sellers who use the site don’t have to.
Until now, many sellers that have a physical presence in only a single state or a few states have been able to avoid charging sales taxes when they ship to addresses outside those states. Online sellers that haven’t been charging sales tax on goods shipped to every state range from jewelry website Blue Nile to pet products site Chewy.com to clothing retailer L.L. Bean.
Sellers that use eBay and Etsy, which provide platforms for smaller sellers, also haven’t been collecting sales tax nationwide.
Under the ruling Thursday, states can pass laws requiring out-of-state sellers to collect the state’s sales tax from customers and send it to the state. More than a dozen states have already adopted laws like that ahead of the court’s decision, according to state tax policy expert Joseph Crosby.
Retail trade groups praised the ruling, saying it levels the playing field for local and online businesses. The losers, said retail analyst Neil Saunders, are online-only retailers, especially smaller ones. Those retailers may face headaches complying with various state sales tax laws, though there are software options to help. That software, too, can be an added cost. The Small Business & Entrepreneurship Council advocacy group said it will “create havoc for small businesses and the marketplace.”
Chief Justice John Roberts and three of his colleagues would have kept the court’s previous decisions in place.
“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,” Roberts wrote in a dissent joined by Justices Stephen Breyer, Elena Kagan and Sonia Sotomayor.
The lineup of justices on each side of the case was unusual, with Roberts joining three more liberal justices and Ginsburg joining her more conservative colleagues.
The case the court ruled on involved a 2016 law passed by South Dakota, which said it was losing out on an estimated $50 million a year in sales tax not collected by out-of-state sellers.
Lawmakers in the state, which has no income tax, passed a law designed to directly challenge the physical presence rule. The law requires out-of-state sellers who do more than $100,000 of business in the state or more than 200 transactions annually with state residents to collect sales tax and send it to the state.
South Dakota wanted out-of-state retailers to begin collecting the tax and sued several of them: Overstock.com, electronics retailer Newegg and home goods company Wayfair. After the Supreme Court’s decision was announced, shares in Wayfair and Overstock both fell, with Wayfair down more than 3 percent and Overstock down more than 2 percent.
South Dakota Gov. Dennis Daugaard called Thursday’s decision a “Great Day for South Dakota,” though the high court stopped short of greenlighting the state’s law. While the Supreme Court spoke approvingly of the law, it sent it back to South Dakota’s highest court to be revisited in light of the court’s decision.
The Trump administration had urged the justices to side with South Dakota. President Donald Trump was meeting with a group of governors Thursday and called the decision a “big, big victory” for them.
The case is South Dakota v. Wayfair, 17-494.
Statements on the court ruling
Indiana Gov. Eric Holcomb:
“A lot about our world and economy has changed in the 26 years since our nation’s highest court last ruled on this issue. With the incredible evolution of technologies and the growth of internet sales, this Supreme Court ruling will help level the playing field between our Hoosier-based companies that operate retail stores and out-of-state companies that sell products and services online in our state. We’re taking a careful look at the ruling to better understand its implications for Indiana.”
Bill Waltz, Indiana Chamber of Commerce vice president of taxation and public finance:
“The Indiana Chamber is very pleased to see today’s Supreme Court decision to permit states to move forward with sales tax collection from online retailers.
It will further level the playing field between in-state brick-and-mortar retailers and their online competitors, while also boosting Indiana’s sales tax base. For years, this situation has resulted in substantial loss of revenue to states, thus increasing the tax burden on those who do pay the taxes they owe.
The Indiana Chamber has been a long-time advocate for online sales tax collection; it is one of the key goals in our Indiana Vision 2025 plan. We applaud state legislators who took the initiative in the 2017 Indiana General Assembly to prepare for this hoped-for decision. That legislation, which the Indiana Chamber strongly supported, has our state perfectly poised to fully implement an online sales tax law and trigger the tax collection.”
Consumers can expect to see sales tax charged on more online purchases – likely over the next year and potentially before the Christmas shopping season – as states and retailers react to the court’s decision, said one attorney involved in the case.