Amazon (AMZN) and other e-commerce stocks fell Thursday, following a closely watched U.S. Supreme Court decision saying states can collect taxes from retailers that do not have a physical presence there. North Dakota, which held that only those businesses with a physical presence in a state had to collect sales taxes from customers in that state.
"Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States". Justices Ruth Bader Ginsburg, Clarence Thomas, Samuel Alito and Neil Gorsuch joined his opinion.
"The physical presence rule has always been criticized as giving out-of-state sellers an advantage". That's because they typically have a physical store in whatever state the purchase is being shipped to. But the third party sellers on Amazon do not. "South Dakota has a uniquely simple law since it generally taxes all consumer purchases instead of carving out a bunch of exceptions, and online sellers can remit their taxes to the state instead of each and every locality". "The expansion of e-commerce has also increased the revenue shortfall faced by States seeking to collect their sales and use taxes".
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The legal issue goes back to 1967, when the Supreme Court ruled that a state couldn't require an out-of-state retailer to collect a use tax unless the retailer had enough contacts with the state.
"I feel bad for the New Hampshire-based retailers because they don't have the infrastructure in place to collect sales taxes", said Nancy Kyle, president and CEO of the New Hampshire Retail Association, a 900-member organization that didn't take a position on the tax. If consumers don't claim those taxes when filing their returns, that is revenue the state doesn't receive.
For those who tend to patronize the biggest retailers, the ruling may not make much of a difference. "Nor would it be worth the hassle to charge them sales tax up front and then send a refund later if the tax isn't required". Roberts wrote that Congress, not the court, should change the rules if necessary. States were missing out on around 25 percent of the tax from online sales, according to the Government Accountability Office, meaning $13 billion in missed sales.
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It's clear that the court's decision will mean extra cash for states.
The 5-4 ruling is widely seen as a victory for brick-and-mortar stores, who previously said that online retailers' ability to skirt sales tax collection gave them an advantage.
South Dakota, the subject of Thursday's Supreme Court ruling, passed a law requiring sellers to collect a 4.5 percent sales tax if they had more than $100,000 in annual sales or more than 200 transactions. Alaska, Del., Mont., N.H. and Ore...won't be affected by the Supreme Court's ruling. (It dealt primarily with catalog sales.) The state, which argued it lost $50 million a year in sales tax, was supported by independent retailers such as bookstores that are forced to compete with online companies but whose products end up being more expensive because they must charge sales taxes. Congress could also step in and block retroactivity, Jones said - as well as whether to set thresholds.
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In 2016, South Dakota enacted legislation that was clearly unconstitutional by Quill standards.