Supreme Court: States Can Collect Online Sales Taxes

In a 5-4 ruling on Thursday, the United States Supreme Court ruled that individual states have the right to force most online retailers to collect state sales tax.  This ruling overturned a previous ruling by the Supreme Court.  

The original rulings from 1967 and 1992 said that companies without a physical presence in the state, such as a store front, did not have to collect sales taxes from customers.  An article from USA Today notes that online sales are growing at a rate four times that of retail sales and, ” As a result, state and local governments in 45 states lose billions of dollars annually in taxes. (Alaska, Delaware, Montana, New Hampshire and Oregon do not have sales taxes.)”

Jeffrey LeSage, the Americas Vice Chairman of Tax for KPMG, says this ruling is substantial for American businesses.  “Today’s Supreme Court decision in South Dakota v. Wayfair could turn out to be almost as significant for American businesses as the recent rewrite of the U.S. federal tax code,” said LeSage.  “The impact of the Court’s ruling on companies in terms of time, technology, and expense is likely going to be substantial. Businesses will now need to prepare to closely examine and retrofit their operations to determine where they have to collect tax, whether their goods are taxable, and how they are going to handle the new tax computation, filing, and remittance obligations.”

KPMG’s Keli Baughan, the senior manager for state and local taxes in the Kansas City office, says the ruling for states outside of South Dakota remains unclear but one thing is for certain—”Consumers in Kansas and Missouri are likely going to be paying a lot more sales tax.”

Baughan says Kansas and Missouri do not have economic nexus rules in place currently, but it wouldn’t be surprising to see them in the near future.   There was a bill in the Kansas legislature earlier this year that would have allowed that—and given the state close to $200 million in revenue—but it died on the calendar and was never brought to a vote.  

Essentially, Baughan says, this opens the door for revenue for states but also a lot of work for companies.  “There’s a lot to consider,” she says.  “There are a lot of companies that now have to figure out how to calculate the tax, can their resources and system handle the additional burden and can they keep up with compliance requirements.”