States Can Now Force Online Businesses to Charge Sales Tax

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The Supreme Court ruled 5-4 on Thursday that states can now enforce sales tax for online purchases. Trump encouraged the decision on behalf of the states.

Previous Decisions

This reverses the decision by the court from two decades ago. The previous laws said that businesses didn’t have to charge sales tax if they were shipping to a state where they didn’t have a physical location. Customers were supposed to keep a record of their online purchases. They were then supposed to pay the total sales tax due at the end of the year. But without any governmental tracking of purchases, most people did not follow this law.

How the Decision Will Affect States

Much has changed in the online landscape in the last 20 years. More and more people are shopping online versus in person. The largest segment of in-person purchases are for food, which is tax exempt. With this shift in consumer behavior, states are losing out on billions of dollars’ worth of taxes every year.

The case that prompted the decision was from South Dakota. The state doesn’t collect income tax from its residents, so they rely heavily on sales tax. Now, it and other states could see a significant increase in income. With companies charging and paying sales tax to states, residents could see a drop in state income taxes.

How the Decision Will Affect Businesses

Many online retailers did charge sales tax under the old law. Companies like Walmart and Apple have physical stores almost everywhere they shipped. They argued that companies that didn’t have physical locations were able to charge lower prices because they didn’t charge tax.

Now, every company will have to charge sales tax. Smaller companies might now have a harder time competing because they will either have to lower base prices or find another way to attract customers. Even companies like eBay and third-party sellers on Amazon will now have to charge sales tax for the state they are shipping products to.

Businesses will need to implement the collection of sales tax on their websites. They will also need to manage their accounting transactions to pay the tax to the states.

Even payments made for digital goods will fall under this rule.