The ruling overturned a 1992 Supreme Court precedent and potentially paves the way for consumers to pay more for their online purchases.
Shares of Amazon (AMZN), Wayfair (W), Etsy (ETSY) and eBay (EBAY) all dipped in early trading Thursday immediately following the ruling.
Last year, states could have collected as much as $13.4 billion in additional online sales taxes, according to the General Accountability Office. Although buyers are technically supposed to add up their purchases and pay all the applicable taxes along with their regular filing, few do.
But plenty of smaller players, such as home furnishings websites Overstock.com and Wayfair, don't have widespread enough operations to be subject to state taxing authority, giving them a substantial price advantage over traditional brick and mortar businesses.
I'm usually for an open regulation-free internet. But I have to admit, I see the logic in this decision and am left wondering why it has taken this long to go in this direction. Mostly, you're...
I'm usually for an open regulation-free internet. But I have to admit, I see the logic in this decision and am left wondering why it has taken this long to go in this direction. Mostly, you're talking about a tolerable increase in final purchase price as I'm guessing a majority of online purchases are for items amounting to less than $500 in a given transaction. That adds up to a major increase for state government budgets. And if handled properly (a big if) that could result in improvements to infrastructure and education in my own backyard, which I'd be happy with.
Just doing some rudimentary math for my home state, NJ, population 9 million. If just 10% of the population buys $50 worth of online goods per month, that's $36 million a year in taxes collected....
Just doing some rudimentary math for my home state, NJ, population 9 million. If just 10% of the population buys $50 worth of online goods per month, that's $36 million a year in taxes collected. Granted, that's a low estimate. But currently the annual state budget is riding in the range of $60 billion. So, I take it back. Collecting taxes online doesn't result in any noticeable improvements in my backyard.
Percentage-wise? It's small. In real terms, you can get a lot of things for ~$50m a year. That's a lot of potholes fixed, teachers or whatever. Flipping things around, what service cuts would you...
Percentage-wise? It's small.
In real terms, you can get a lot of things for ~$50m a year. That's a lot of potholes fixed, teachers or whatever.
Flipping things around, what service cuts would you accept on the order of $50m a year to grant a specific exception from sales tax for online purchases? Why should they be excepted?
It sounds like several of the justices had issues with the state's argument. I still don't think I understand the justification that a state can compell a company outside it's jurisdiction to do...
It sounds like several of the justices had issues with the state's argument. I still don't think I understand the justification that a state can compell a company outside it's jurisdiction to do anything.
I won't even try to work the examples used in court. Here's just a squinty-eyed reason for why the ruling makes sense. Hopefully that's more accessible: You sit in your home. You buy something....
The court said that law effectively incentivized businesses to "avoid physical presence" in states and led to "a judicially created tax shelter" Ultimately, the justices said the current laws are outdated.
I won't even try to work the examples used in court. Here's just a squinty-eyed reason for why the ruling makes sense. Hopefully that's more accessible:
You sit in your home. You buy something. You get that delivered to your house. It only makes sense that's legally equivalent to visiting your local store. They're providing the service in your area, right?
Now let's say you're buying a digital good so the product you're buying in your home that's delivered to your home is only delivered to your computer through the network traffic that goes to your house. That's still pretty equivalent to buying a product and having it delivered to your house right?
If you order something and it comes from abroad, you pay national taxes and tariffs when the goods cross national borders. Why shouldn't the equivalent happen for local taxes when you cross state lines?
The 1992 ruling that you can only levy taxes on someone who has a physical office doesn't make much sense when such a large proportion of goods we buy are ordered online and delivered either electronically or at your doorstep.
Whatever the legal justifications, at a glance it just makes sense and aligns with what most people will feel is obviously the right way of doing things.
Oh I'm completely in agreement that it's legally justifiable to charge sales tax on internet purchases. What I don't understand is why are companies outside the jurisdiction of the state legally...
Oh I'm completely in agreement that it's legally justifiable to charge sales tax on internet purchases. What I don't understand is why are companies outside the jurisdiction of the state legally compelled to collect sales taxes on my behalf. Sales taxes are a burden on myself, the consumer, not the business itself. Charging sales taxes at local businesses makes more sense because the state can say "Hey, you want to sell goods at your store in our state? Well your store needs to follow our rules.". Since an online company isn't headquartered in that state and doesn't have any sort of physical presence, I'm not sure I totally buy the argument that the state can impose any sort of rules or regulations on them.
The argument goes: "hey you're selling goods and delivering it to customers in our state? Charge our local taxes." The alternative would be having tax borders between states and having to charge...
The argument goes: "hey you're selling goods and delivering it to customers in our state? Charge our local taxes."
The alternative would be having tax borders between states and having to charge government-run processing fees. That's a poor solution.
Example of this in practice: Norway is in the European Economic Area (EEA), but not a member state of the EU. That means you have to pay tax on goods shipped from Sweden to Norway although there's free movement of people, goods and services between the two member states of the EEA.
The literal reason for Norway doing things that way is to retain retail jobs in Norway so they don't end up elsewhere, like Sweden. That entire cost is borne buy us consumers directly through processing fees on shipped goods. There's a lower limit: you packages with a value of less than ~50 USD are tax free, so no processing fee.
Sweden removed that lower limit. The result was that hundreds of thousands of packages in transit from China went unclaimed because the processing fee was on the order of ~$15. That trade has effectively stopped, hurting consumers.
In a modern digital economy, physical presence is often separated from the end point at which you provide your service. The EU imposes their privacy rules for anyone providing a service to EU consumers/users. What's the alternative to that? Demanding servers be hosted locally or physical offices. That's just a worse solution for everyone involved because it raises costs for no reason that impacts the actual service.
Well, that's the whole point. The Court found that these companies were not, in fact, outside of state jurisdiction just because they lacked a physical presence in the state. There are many ways...
Well, that's the whole point. The Court found that these companies were not, in fact, outside of state jurisdiction just because they lacked a physical presence in the state. There are many ways for states to gain jurisdiction over a case other than actual physical presence and this decision allows states to exercise their jurisdiction for taxation to online businesses that trade in their state.
This is painful for small businesses and I think it's going to hurt a lot of folks. I run a site selling online training for a specific industry. It's state specific so this doesn't affect me...
This is painful for small businesses and I think it's going to hurt a lot of folks.
I run a site selling online training for a specific industry. It's state specific so this doesn't affect me much, but I immediately see two headaches for every small online store that sells across state lines:
Keeping track of the correct sales tax amount (made easier by many types of software)
Actually paying the sales tax which is going to be different for each state
For example, in the state I'm in I have to file quarterly sales tax. That means I have to go to a specific website, create an online account, tie it to a bank account, upload my sales information, then actually remember to go in four times a year and pay. This was JUST barely worth my time last year when I made $3K in profit.
I simply cannot imagine doing that X 50 and I'd need to be making a LOT more money to make me even consider it.
Now some of you might say, "but in South Dakota it's only sales over $100K!" Well that's South Dakota. My state taxes all sales. What is the law for the other states? Where do I find that? How often do those laws change? How do I monitor those changes? My state has a service for that. Do the other 49?
Also, did you know that COUNTIES often have sales tax as well? There's a whole other shoe to drop here that hasn't been discussed.
I'm usually for an open regulation-free internet. But I have to admit, I see the logic in this decision and am left wondering why it has taken this long to go in this direction. Mostly, you're talking about a tolerable increase in final purchase price as I'm guessing a majority of online purchases are for items amounting to less than $500 in a given transaction. That adds up to a major increase for state government budgets. And if handled properly (a big if) that could result in improvements to infrastructure and education in my own backyard, which I'd be happy with.
Just doing some rudimentary math for my home state, NJ, population 9 million. If just 10% of the population buys $50 worth of online goods per month, that's $36 million a year in taxes collected. Granted, that's a low estimate. But currently the annual state budget is riding in the range of $60 billion. So, I take it back. Collecting taxes online doesn't result in any noticeable improvements in my backyard.
Percentage-wise? It's small.
In real terms, you can get a lot of things for ~$50m a year. That's a lot of potholes fixed, teachers or whatever.
Flipping things around, what service cuts would you accept on the order of $50m a year to grant a specific exception from sales tax for online purchases? Why should they be excepted?
It sounds like several of the justices had issues with the state's argument. I still don't think I understand the justification that a state can compell a company outside it's jurisdiction to do anything.
I won't even try to work the examples used in court. Here's just a squinty-eyed reason for why the ruling makes sense. Hopefully that's more accessible:
You sit in your home. You buy something. You get that delivered to your house. It only makes sense that's legally equivalent to visiting your local store. They're providing the service in your area, right?
Now let's say you're buying a digital good so the product you're buying in your home that's delivered to your home is only delivered to your computer through the network traffic that goes to your house. That's still pretty equivalent to buying a product and having it delivered to your house right?
If you order something and it comes from abroad, you pay national taxes and tariffs when the goods cross national borders. Why shouldn't the equivalent happen for local taxes when you cross state lines?
The 1992 ruling that you can only levy taxes on someone who has a physical office doesn't make much sense when such a large proportion of goods we buy are ordered online and delivered either electronically or at your doorstep.
Whatever the legal justifications, at a glance it just makes sense and aligns with what most people will feel is obviously the right way of doing things.
Oh I'm completely in agreement that it's legally justifiable to charge sales tax on internet purchases. What I don't understand is why are companies outside the jurisdiction of the state legally compelled to collect sales taxes on my behalf. Sales taxes are a burden on myself, the consumer, not the business itself. Charging sales taxes at local businesses makes more sense because the state can say "Hey, you want to sell goods at your store in our state? Well your store needs to follow our rules.". Since an online company isn't headquartered in that state and doesn't have any sort of physical presence, I'm not sure I totally buy the argument that the state can impose any sort of rules or regulations on them.
The argument goes: "hey you're selling goods and delivering it to customers in our state? Charge our local taxes."
The alternative would be having tax borders between states and having to charge government-run processing fees. That's a poor solution.
Example of this in practice: Norway is in the European Economic Area (EEA), but not a member state of the EU. That means you have to pay tax on goods shipped from Sweden to Norway although there's free movement of people, goods and services between the two member states of the EEA.
The literal reason for Norway doing things that way is to retain retail jobs in Norway so they don't end up elsewhere, like Sweden. That entire cost is borne buy us consumers directly through processing fees on shipped goods. There's a lower limit: you packages with a value of less than ~50 USD are tax free, so no processing fee.
Sweden removed that lower limit. The result was that hundreds of thousands of packages in transit from China went unclaimed because the processing fee was on the order of ~$15. That trade has effectively stopped, hurting consumers.
In a modern digital economy, physical presence is often separated from the end point at which you provide your service. The EU imposes their privacy rules for anyone providing a service to EU consumers/users. What's the alternative to that? Demanding servers be hosted locally or physical offices. That's just a worse solution for everyone involved because it raises costs for no reason that impacts the actual service.
Well, that's the whole point. The Court found that these companies were not, in fact, outside of state jurisdiction just because they lacked a physical presence in the state. There are many ways for states to gain jurisdiction over a case other than actual physical presence and this decision allows states to exercise their jurisdiction for taxation to online businesses that trade in their state.
Well, there goes the last thing I could hold over my Canadian friends.
This is painful for small businesses and I think it's going to hurt a lot of folks.
I run a site selling online training for a specific industry. It's state specific so this doesn't affect me much, but I immediately see two headaches for every small online store that sells across state lines:
For example, in the state I'm in I have to file quarterly sales tax. That means I have to go to a specific website, create an online account, tie it to a bank account, upload my sales information, then actually remember to go in four times a year and pay. This was JUST barely worth my time last year when I made $3K in profit.
I simply cannot imagine doing that X 50 and I'd need to be making a LOT more money to make me even consider it.
Now some of you might say, "but in South Dakota it's only sales over $100K!" Well that's South Dakota. My state taxes all sales. What is the law for the other states? Where do I find that? How often do those laws change? How do I monitor those changes? My state has a service for that. Do the other 49?
Also, did you know that COUNTIES often have sales tax as well? There's a whole other shoe to drop here that hasn't been discussed.