Online shopping prices likely to rise after new sales tax ruling

Jenny Kane  Associated Press

Recent attempts at the Roundhouse to impose the state's gross receipts tax on internet vendors have failed - one proposal was line-item vetoed by Gov. Susana Martinez a year ago - but lawmakers from both political parties have described the measure as a fairness issue that could help local businesses.

It's a huge win for vendors with physical storefronts which have long argued that their online counterparts enjoyed an unfair advantage since they didn't have to charge customers local sales tax. In the wake of the Supreme Court ruling, more states are likely to follow suit, meaning more online sales will be subject to the tax. The Supreme Court heard arguments in the case in April. A bipartisan group of senators filed a brief in the case supporting South Dakota's effort to overturn the online sales tax ban, essentially acknowledging that the legislative body was too dysfunctional to fix the problem.

As an example, lawyers for the online retailers told the high court that in IL, a Snickers bar costs more in taxes than a Twix bar, since food items containing flour are not treated as candy for tax purposes.

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E-commerce sales in the fourth quarter of 2017 increased to $119 billion, up more than 3% from the previous quarter and almost 17% from a year earlier, according to U.S. Census Bureau data.

More than 40 states had asked the high court to overrule two decades-old Supreme Court decisions that limited the ability of states to put sales tax on many internet transactions.

The Court's decision was 5 to 4. Under a previous ruling, if a business was shipping to a customer where the company didn't have a physical presence, the business didn't have to collect sales tax for the purchase. Kennedy said that position was archaic, "unsound and incorrect" in the internet age. The losers, said retail analyst Neil Saunders, are online-only retailers, especially smaller ones. North Dakota standard that remote businesses need a physical presence to be taxed. He continued to write "the rule produces an incentive to avoid physical presence in multiple states". And, if some small businesses with only de minimis contacts seek relief from collection systems thought to be a burden, those entities may still do so under other theories.

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Nellen said it's also possible Congress will step in and "tone down" the ruling, or "require states to do something to make it easier". Five states don't charge sales tax.

The decision also effectively acknowledged the profound shifts in the American retail landscape. They had resulted in some companies not collecting sales tax on every online purchase. That means that some of the biggest online retailers - including Wayfair, Overstock.com, and Newegg, who were named in the suit against the state of South Dakota - may soon have to pass on that additional cost to consumers. States had no viable way to track down everyone who wasn't paying their sales tax, which is why they wanted to force retailers to collect it regardless of where they were located. Now, some companies had, like Amazon had been remitting the sales tax to us already on internet sales.

This is a developing story and will be updated.

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