Supreme Court rules States can impose sales tax for out of state online shoppers

Supreme Court rules in internet sales tax case: States can charge online shoppers

June 21, 2018, 1:53 PM

WASHINGTON — The Supreme Court says states can force online shoppers to pay sales tax, clearing the way for major changes in the world of e-commerce.

The 5-4 ruling Thursday is a win for states, who said they were losing out on billions of dollars annually under two decades-old Supreme Court decisions that affected online sales tax collections.

The high court ruled Thursday to overturn those decisions. "The Internet's prevalence and power have changed the dynamics of the national economy," the court said in its decision in the case, South Dakota v. Wayfair.

Under the previous law, some companies did not collect sales tax on every online purchase. Businesses had to collect sales tax only when shipping products to a state where they had a physical presence, such as a warehouse or office. Otherwise, they didn't have to collect the state's sales tax.

Customers were generally supposed to pay the tax to the state themselves if they were not charged by the merchant, but the vast majority did not.

"If you're a pure-play online retailer and have very limited geography, say, one distribution center, this is going to be meaningful," said Charlie O'Shea, lead retail analyst at Moody's. "There are a lot of retailers out there that have only collected sales tax in states where they have to."

Not least of those is Amazon, a large part of whose business consists of sales through other merchants operating on Amazon Marketplace. While the e-commerce giant collects sales tax on all items it sells directly, third-party purchases are taxed in just two states, Washington and Pennsylvania. Those purchases could make up a third or more of Amazon's revenue, by some estimates.

Last year, third-party sales earned Amazon nearly $32 billion across the globe, according to SEC filings, and the business is growing rapidly.

Wayfair stock was down 2.5 percent Thursday, while shares of online craft marketplace Etsy dropped more than 3 percent. Amazon nudged down half a percentage point.

CBS News' Irina Ivanova contributed reporting.

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