Ever since online shopping first came about one of the best parts about it was the lack of sales tax. For the most part, the price we saw was the price we paid, plus shipping of course.
That was great for us, the consumer, but as more people took to the internet to buy their stuff, the our state governments realized they were missing out on a good amount of tax dollars. Needless to say, the government did not like that.
It’s all going to change now, however, after a recent Supreme Court ruling overturned a previous one. Soon, sales tax could be added to everything we buy online.
The decision was close
The Supreme Court ruled, in a 5-4 decision, that South Dakota can begin to collect sales taxes off of online purchases. Justice Anthony Kennedy wrote the decision, in which he was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito an Neil Gorsuch.
Formerly taxes were not required of stores who did not have an actual presence in the state.
Of the decision, Kennedy wrote:
“The Internet’s prevalence and power have changed the dynamics of the national economy. This expansion has also increased the revenue shortfall faced by states seeking to collect their sales and use taxes.”
As states all across the nation face budget deficits, additional revenue that comes from online sales should be helpful. However, that will mean shopping on the internet will become more expensive, which could itself prove damaging in a number of ways.
Part of the dissent, Justice John Roberts wrote that the decision on whether to tax online sales should be left to Congress. Joined by Justices Sonia Sotamayor, Elena Kagan and Stephen Breyer, he wrote:
“The burden will fall disproportionately on small businesses. The court’s decision today will surely have the effect of dampening opportunities for commerce in a broad range of new markets.”
It may have only been a matter of time
Nobody wants to pay more in taxes, but this change may have been a bit overdue. After all, when tax laws were created there was not much in the way of online shopping.
Therefore, the idea of not charging taxes for companies that were not actually in the state made sense. Even if some sales were made, there were not nearly enough to make much of an impact.
But as the internet continued to grow and more retailers made most of their sales online, regulations that were set up even 20 years ago ended up being somewhat obsolete.
The Internet Tax Freedom Act of 1998 barred federal, state and local governments from taxing internet access and from creating things like bit taxes, bandwidth taxes and email taxes. Along with that, it also prevented multiple taxes on electronic commerce.
With that in mind, back in 2000 a national commission tried to get states to simplify their tax systems so that they could be prepared for remote sellers. A total of 24 states did — South Dakota among them — but more than half of them did not.
Because of that, states have been left to try and figure out ways to collect taxes from online sales, especially when the retailer is not in the state where the item is being bought.
How much will things change?
While this sounds like it will not be a good thing, there is still plenty that has to play out before we know the ruling’s true impact. Many of the top online retailers have already been collecting taxes, so it’s likely you won’t necessarily notice a change.
Furthermore, this ruling was based on an issue in South Dakota, where the state wanted to collect taxes from online stores who have more than $100,000 in annual sales or 200 transactions in the state.
The ruling sets a precedent, yes, but for now it only affects South Dakota. Assuming any other taxes follow a similar model as to what South Dakota asked for, smaller businesses could find themselves exempt from sales taxes.
Yet, the door has now been opened for the possibility that others will soon have to pay up. And if retailers have to start paying up, we know where the additional money will come from.