The U.S. Supreme Court ruled 5-4 Thursday that states can collect sales tax from online sellers in some circumstances.
The court changed 20 years of internet commerce rules.
Favoring South Dakota, the court overturned the earlier decision in Quill vs North Dakota that said a business only pays if it is physically in the state.
Writing for the majority, Justice Anthony Kennedy said the old standard was removed from “economic reality,” and “created market distortions” that favored out-of-state sellers.
“We welcome the court’s ruling in this case,” said Kevin Lyons, spokesman for the Texas Comptroller’s office. “(We’re) currently assessing any potential revenue impacts as a result of this decision, as well as whether any rule changes or legislation might be required to achieve the benefits of the decision.”
The comptroller’s office estimated in 2014 that Texas could collect as much as $1 billion more in revenue for state and local governments.
The ruling drew criticism from right-leaning groups like American’s for Prosperity and the American Legislative Exchange Council, which argued it would be bad for small businesses.
“Sales tax isn’t something that draws people away from making a purchase,” said Justin Reed, search engine marketing manager for Pear Analytics.
Despite the ruling, Reed said, consumers still want the convenience of online shopping and they will pay for it. If people will still buy, then even small businesses will still be able to thrive online, he said.
“I think that the opportunity to start an e-commerce business is very much alive.” he said.
Reed said recent tariffs on Chinese imports are a bigger threat to small e-commerce businesses.
When and how much businesses pay and to whom is a real concern for small online businesses, Reed said. But he said there are plenty of software options to automate that process.
“There’s a lot of uncertainty created by the decision,” said Geoff Polma, a Dallas tax attorney.
Now, there is an economic threshold determining when states pay sales tax — and states could interpret them very differently, he said.
South Dakota’s law only taxes companies that do at least $100,000 in sales, or 200 or more transactions within the state. But each state taxes differently, creating complexity and costs for businesses.
“I frankly think there’s going to be immense pressure on Congress to act,” he said.
Congress has failed to pass bills to address the issue in the past despite the Supreme Court’s urging in related cases.
The Marketplace Fairness Act was introduced in the Senate in 2011 and a version of it currently is pending at the Capitol.
Now, Polma said, some of that legislation’s chief opposition may become its biggest boosters to avoid the patchwork of taxing jurisdictions.
The U.S. Government Accountability Office said that, last year, 80 percent of online sellers already paid sales tax, but the remaining 20 percent equated to $13 billion in potential government revenues.