U.S. states now have the power to collect sales taxes from internet retailers after the Supreme Court on Thursday, scrapped a 1992 tax law that shielded them from doing so.
The overturned law (Quill Corp. v. North Dakota) allowed online businesses to avoid collecting sales tax from their customers, if they do not have a physical presence, like a warehouse, storefront, or corporate office in the state.
The Supreme Court, in a 5-4 ruling, reversed the law which had given many e-commerce retailers, such as Overstock and Amazon, a pricing advantage over their brick-and-mortar counterparts.
Supreme Court Justice Anthony Kennedy read the opinion of the majority saying the decades-old tax law was obsolete in the current era of e-commerce businesses.
“Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers. Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own,” Justice Kennedy said.
Chief Justice John G. Roberts Jr. delivered the minority opinion saying, “Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress.”
The National Retail Federation, through its President and Chief Executive Officer, Matthew Shay welcomed the decision saying it would create a level the playing field for physical retailers.
“Retailers have been waiting for this day for more than two decades. The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well.
This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both,” Shay said in statement.
President Donald Trump also hailed the decision on his Twitter account saying that it was a “big victory for fairness and for our country. Great victory for consumers and retailers.” The President has time and again criticized Amazon for failing to pay taxes, and using the U.S. Post Service as their “delivery boy.”
However, some small business owners have slammed the ruling and raised concerns that it will be a huge burden to small internet retailers.
The decision is also expected to take away the sales-tax savings that American consumers enjoy by making online purchases instead of buying from traditional physical retailers.
Online retail investors fear a hostile response from consumers who will now be forced to spend more money to purchase items online. Amazon shares fell as much as 1.9% in the wake of the ruling.
Shares of other online retailers, such as Wayfair, eBay, and Etsy also plunged. Wayfair initially tanked as much as 10% before climbing a bit. Etsy lost nearly 5.7%, Overstock dropped as much as 7.2%, while eBay took a dip of nearly 2%.