Your Newegg purchases are likely to get a little bit more expensive in the near future. On Thursday, the Supreme Court ruled against the online retailer in what’s been called the “tax case of the millennium.” The five-to-four decision found that states are allowed to collect sales tax from online purchases even if a business doesn’t have a physical presence in that state.
The case has been the subject of debate for decades. In 2003, many of the biggest retailers, like Target and Wal-Mart, voluntarily agreed to start collecting sales tax from online transactions in all states. Until today’s ruling, requiring businesses to collect state sales tax online was only allowed if a retailer had a physical presence in the state. In 2003, Wal-Mart’s had brick-and-mortar locations in every state but Walmart.com only had a physical presence in nine states. Last year, Amazon also started voluntarily collecting sales tax in every state. But as more business has moved online, states were losing billions in revenue. Now, they’ll be able to force all online retailers to feed the taxman.
The Case revolved around a complaint brought by Newegg Overstock.com, and Wayfair that South Dakota was violating two US Supreme Court decisions by requiring the retailers to collect state sales tax. South Dakota asked the court to overturn the decisions that related to taxation applied to mail-order catalogs. Justice Anthony M. Kennedy wrote in the majority decision that the previous rulings were now outdated. He wrote in part:
Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States. These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause...
A virtual showroom can show far more inventory, in far more detail, and with greater opportunities for consumer and seller interaction than might be possible for local stores. Yet the continuous and pervasive virtual presence of retailers today is, under Quill, simply irrelevant. This Court should not maintain a rule that ignores these substantial virtual connections to the State.
Chief Justice John Roberts wrote the dissenting opinion in which he argued that any action to modernize policy should be handled by Congress. “E-commerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule,” he wrote. According to Roberts, altering those rules risks disrupting a significant segment of the economy, and “the court should not act on this important question of current economic policy, solely to expiate a mistake it made over 50 years ago.”
For individuals, the increased expenses will likely be marginal, but people engaging in business-to-business sales could feel a bit more pain. Last year, the US Government Accountability Office found that states would gain somewhere between $8.5 billion to $13.4 billion in annual revenue.