States claim big win in Supreme Court decision on sales tax

States claim big win in Supreme Court decision on sales tax
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The Supreme Court on Tuesday gave state legislatures across the country a big win by upholding a South Dakota law that requires out-of-state retailers to collect taxes on sales made over the internet.
The 5-4 opinion, authored by Justice Anthony Kennedy, overturned a 1992 case that required only retailers that had a physical presence in states to collect sales taxes.
Allowing states to require online retailers to collect sales taxes has been a top priority for state-based groups like the National Conference of State Legislatures (NCSL) and the National Governors Association for years. Those organizations have pressured Congress to act, though progress on Capitol Hill had been slow.
“I’m ecstatic, absolutely. I don’t think I could have wished for a better outcome,” said Deb Peters (R), a South Dakota state senator and the president of NCSL, who initially sponsored the law upheld by the high court.
Peters said farmers in her state who sell their eggs in California must abide by California law. The ruling, she said, would require online retailers to abide by South Dakota’s laws — or California’s, or any other state’s.
“This levels the playing field,” Peters said. “You’ve got to follow a state’s laws, whether you’re a farmer or a retailer.”
States stand to gain millions of dollars in new revenue if they adopt bills similar to the South Dakota measure that went before the Supreme Court, analysts and experts said Thursday.
“The Supreme Court’s ruling permitting tax collection on all online sales is credit positive for states and local governments, particularly for states that rely most heavily on sales taxes to support their budgets,” said Chandra Ghosal, a Moody’s vice president and senior analyst.
The South Dakota law requires online sellers without a physical presence in the state to collect sales taxes if they make more than $100,000 in sales, or 200 total transactions, to South Dakota residents. State Revenue Secretary Andy Gerlach will issue guidance to online retailers in the coming days.
“States have long fought the battle for Main Street businesses and now with today’s ruling, all businesses will compete on a level playing field,” South Dakota Gov. Dennis Daugaard (R) said in a statement.
Conservative and anti-tax groups warned the ruling could dampen economic activity and increase compliance costs for businesses that conduct most of their sales online.
“Today's ruling threatens to stunt economic growth. More concerning, it marks a departure from a constitutional understanding of federalism,” said Joel Griffith, director of the Center for State Fiscal Reform at the conservative American Legislative Exchange Council. “Remote retailers — many of whom are small businesses — may soon be forced to keep track of the thousands of taxing jurisdictions across the country, many with their own rates, bases, rules and regulations.”
Peters said allowing states to set their own tax rates, and to require businesses to collect those taxes on online sales, is an issue of federalism.
“It’s a states-rights issue,” Peters said. “It fundamentally comes down to a state being able to legislate tax policy at a state level.”