U.S. Supreme Court Rules E-Tailers Must Collect Sales Taxes

Retail trade organizations cheered a U.S. Supreme Court ruling that would require online retailers to collect sales taxes in areas where they do not have offices, warehouses or bricks-and-mortar stores.

On June 21, the Supreme Court overruled a 1992 ruling from Quill Corporation v. North Dakota, which said it was unconstitutional for e-tailers to collect sales taxes unless they had a sizable physical presence in a state.

Matthew Shay, the president and chief executive officer of the National Retail Federation, said the ruling settles a matter that has long been an issue in the retail business.

“The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales-tax policies to change as well.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,” Shay said in a statement.

The Retail Industry Leaders Association said an old rule protecting a once new and unsteady e-commerce market had outlived its use.

“The court clearly didn’t buy the argument made by the respondents in this case that remote sales-tax compliance represented the same burden today that it did in 1992. Through its decision, the court has acknowledged that the same computing sophistication that has fueled exponential growth in e-commerce has also dramatically simplified remote sales-tax collection,” said Deborah White, the general counsel for the Retail Industry Leaders Association and president of the Retail Litigation Center.

Advocacy group Americans for Tax Reform said the court’s decision is a case of governmental overreach. “Today the Supreme Court said, ‘Yes—you can be taxed by politicians you do not elect and who act knowing you are powerless to object,’” Grover Norquist, the group’s president wrote. “We fought the American Revolution in large part to oppose the very idea of taxation without representation. Today, the Supreme Court announced, ‘Oops,’ governments can now tax those outside their borders—those who have no political power, no vote, no voice.”

The Supreme Court decision is likely to be the final chapter in a fight that has been waged between online retailers, bricks-and-mortar businesses and all levels of governments for more than a decade.

The fight flared up in 2011, when the California Senate passed a bill requiring out-of-state retailers such as to collect sales tax. Amazon responded by cutting ties with its California affiliates, or publishers of websites that posted advertisements and coupons for e-commerce retailers on their websites.

The result was a significant loss of income for affiliates. Later in 2011, Amazon restored its ties with its affiliates and built fulfillment centers in the state in exchange for a deal that it wouldn’t have to collect sales tax in California until September 2012.