In a five-to-four decision, the U.S. Supreme Court today ruled that states may collect sales tax from out-of-town e-tailers doing business within their borders.
The ruling overturns the so-called Quill decision — itself based on a 1967 mail-order case — requiring that a retailer maintain a physical presence, or nexus, within a state in order to be subject to its sales tax.
In delivering the majority opinion, Justice Anthony Kennedy described the Quill judgement as “flawed,” and wrote that “The physical presence rule it defines has limited states’ ability to seek long-term prosperity and has prevented market participants from competing on an even playing field.”
The current case came before the court when online-only retailers Newegg, Overstock and Wayfair challenged a 2016 South Dakota law requiring sales tax collection by out-of-state companies doing more than $100,000 or 200 or more transactions within its jurisdiction.
The decision will have little impact on the country’s biggest e-commerce businesses. Amazon, the largest, already collects sales tax in 45 states where it maintains fulfillment centers and retail stores (the other five, Alaska, Delaware, Montana, New Hampshire and Oregon, don’t require it), as does Walmart, which operates discount stores across the country.
The court also rejected the e-tailers’ argument that calculating and collecting sales tax in thousands of different jurisdictions would be onerous, noting that South Dakota is one of more than 20 states that have standardized their taxes and provide free tax collection software to sellers under the Streamlined Sales And Use Tax Agreement.
South Dakota stands to gain upwards of $58 million in annual tax revenue as a result of the decision, according to the state’s Department of Revenue.