States will be able to force more people to pay sales tax when they make online purchases under a Supreme Court decision Thursday that will leave shoppers with lighter wallets but is a big financial win for states.
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.
The Supreme Court’s 5-4 opinion Thursday 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.”