In a 5-4 decision, the Supreme Court ruled today that states may now require online retailers to collect sales taxes from consumers, regardless of where the business is located or the product is delivered. In 1992, the same court ruled that a business had to have some kind of “physical presence” or “nexus” in order to be required to collect sales tax in a state. With the increased use of online shopping, however, it turns out not all taxpayers report non-taxed purchases to the states in which they reside. In fact, an estimated $33.9 billion goes uncollected in sales taxes each year, costing states a significant sum. Additionally, internet shopping tax-free has hurt the brick-and-mortar stores that already have higher operational costs due to a physical presence in a state, since they must collect sales tax on taxable transactions.
Over the past several years, we have watched as various states enact laws which allow a determination that a business has nexus in the state to become increasingly easy for the state to assert. Today, we have a clear answer… sort of…
The Court did not go so far as to create a bright-line rule. Rather, it removes the physical presence hurdle concerning nexus. Each state’s requirement still must be constitutional and not place an impermissible burden on interstate commerce. So, state sales tax auditors are not out of jobs, yet.
The law is not retroactive, so watch here for updates on upcoming changes in your state. To read the full case, click here.