E-commerce Takes a Hit as U.S. Supreme Court Rules in Favor of Sales Taxes on Web Merchants

The U.S. Supreme Court June 21 in a 5-4 decision ruled that states can levy a sales tax on products sold by e-commerce merchants regardless of a physical presence in the state. The decision is a multibillion-dollar windfall for states.

The ruling overturned a 1992 decision that held the Constitution barred states from collecting taxes on businesses with no physical presence within their borders.

That ’92 decision helped spawn e-commerce, which, spearheaded by Amazon and others, has hamstrung a brick-and-mortar retail ecosystem that is required to collect sales tax.

But in 2015, Justice Anthony Kennedy questioned the decision involving a North Dakota business. South Dakota responded by imposing a tax on all merchants that had more than $100,000 in annual sales or more than 200 individual transactions in the state.

The state then sued online retailers Wayfair, Overstock.com and Newegg for violating the rule. The case ultimately wound its way to the U.S. Supreme Court.

The decision is seen as major hit to e-commerce behemoth Amazon, which charges sales tax on items it sells directly, but not on those sold by third-party retailers. In 2017, Amazon reportedly generated nearly $32 billion in revenue from third-party sellers — more than it generates from Amazon Web Services.

 

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