Justice Kennedy Bids Adieu With A Victory For The States

It never really seemed to make much sense, did it? From its infancy as a start-up bookseller called Amazon.com to its current stature as a multi-conglomerate retail revolution, online shopping never had to adhere to the same tax burden as its traditional brick-and-mortar counterparts. Along the way, consumers never bothered to question it. Chalk it up to the maverick spirit of the information superhighway, they said. And, hey, it sure makes holiday shopping a lot more affordable.

Until now.

In South Dakota v. Wayfair Inc1. , the U.S. Supreme Court handed down a landmark decision on June 21, 2018, ruling that states can now collect and remit sales taxes from internet retailers, even if they have no physical presence in the state. More than 50 years of blocking states' ability to do so via Quill and National Bella Hess2 was overturned. Depending on who you ask, the Court might be the grinch that stole tax-free internet shopping, or a savior to states in desperate need of tax revenue. Many view the decision as a victory for Main Street businesses that have long complained about being at a disadvantage relative to online sellers (not to mention the time and expense of having to actually leave your home), and a boon for state and local tax revenues.

It's easy to say consumers and some online retailers are going to take a hit given this new landscape, but it might not be as bad as you think. Most states already require consumers to pay a "use tax" equivalent to the state sales tax. And while there were some tremors in a few big-game online sellers' stock prices (Amazon shares dropped 1.1 percent and Overstock.com was down more than 7 percent the day the decision was announced), many market analysts feel the fluctuations will probably level out in the short-term due to several companies' track records of anticipating and preparing for this sea of change. Wayfair, for example, said in a post-decision statement that it already collected sales tax on approximately 80 percent of its orders in the U.S. and, as a result, did not expect the decision to have any noticeable impact on their business. The effect on Amazon could be even smaller since, as of last year, the company started collecting sales tax in the 45 states that have one. But close to half of Amazon's total online sales is generated from independent merchants who post their inventory there. In most states, those merchants are responsible for calculating and paying the state taxes, which has been difficult to track.

A Little Too Ironic?

The irony here is that, with the Wayfair decision, the Court essentially dismantled a system it created. The 1992 Quill decision (piggy-backing off the National Bella Hess case from...