On June 21st, 2018, the Supreme Court issued a decision overturning Quill Corp. v. North Dakota (1992). This court ruling in the case of South Dakota v. Wayfair (2018), will allow states to charge a tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state, thus creating a new state internet sales tax. This decision overturned the aforementioned case from 1992, which “barred states from compelling retailers to collect sales or use taxes in connection with mail order or Internet sales made to their residents unless those retailers have a physical presence in the taxing state.”
The ruling was made to guarantee that consumers pay sales tax when purchasing from large e-commerce corporations such as Amazon, eBay, and Etsy. These corporations will have to keep their sellers compliant with state tax laws, although, to this date, it is unclear whether this burden will fall on the large corporations or the individual sellers. A significant portion of the sellers on these massive online retailers are independent small businesses, thus potentially affecting the sellers more than the large companies.
Additionally, the ruling levels the playing field and promotes fair competition with brick and mortar stores. Online stores will now have to increase their prices to cover the new expenses.
What does this mean for me?
Any increase in taxation results in higher prices for consumers. Small online business retailers, most notably the ones without a physical store presence, will be forced to raise prices on products to cover the additional tax expense. Furthermore, because different types of products are taxed differently, there will be an increased compliance burden on small businesses as there are over 10,000 state jurisdictions that govern sales tax across the U.S.
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How will this affect Brick and Mortar retailers?
The National Retail Federation approve of the Supreme Court Decision, hoping it will help retailers compete with online businesses.
As large chains and corporations grow, it increases competition, which has forced some brick and mortar stores to expand to e-commerce and online retail.
This decision gives states more power over internet sales tax and has the potential to increase the cost of internet business which could improve the ability of brick and mortar businesses’’ to compete.