Brick-and-mortar retailers that have seen their businesses upended, and some literally destroyed, by the rise of ecommerce finally had a vindication moment on Thursday: The U.S. Supreme Court, in a landmark 5-4 ruling, basically gives states the green light to have online retailers collect sales tax just like any local retailer.
The message of that decision for the ecommerce players? They’ve grown so big that they can’t have any special break anymore, at least when it comes to collecting sales tax, regardless of whether they have any physical presence in a state.
The highest U.S. court made the decision after South Dakota in 2016 filed a lawsuit against major pure-play online retailers Wayfair, Overstock.com and Newegg regarding state tax collection. Thursday’s ruling in effect overturned a prior court decision in 1992 that has since given a sales tax advantage to online retailers.
In the majority opinion written by Justice Anthony Kennedy, the Supreme Court said times have changed to such a degree that online retailers no longer qualify for “an arbitrary advantage over their competitors who collect state sales taxes” by claiming they don’t have a physical presence in a state.
“The internet’s prevalence and power have changed the dynamics of the national economy,” Justice Kennedy wrote. He added internet players’ not collecting sales tax have cost states as much as $33 billion in sales tax revenue each year.
Among some of the other specific evidence presented by the court? Less than 2% of Americans had internet access in 1992, compared to about 89% today. Last year, ecommerce sales alone totaled $454 billion. When combined with traditional catalogue and other “remote” sales, that figure topped half a trillion dollars. What’s more, since the Department of Commerce first began tracking online sales, ecommerce has surged tenfold to nearly 9% of total U.S. retail sales from just 0.8% –a percentage that will likely head higher with online sales growing at four time the rate of brick-and-mortar retail.
Leveling The Playing Field?
“Retailers have been waiting for this day for more than two decades,” said National Retail Federation President and CEO Matthew Shay in a statement Thursday. “The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well. This ruling clears the way for a fair…