Supreme Court: Online Shoppers Can Be Forced To Pay Sales Tax

On Thursday, in a 5-4 ruling in South Dakota vs, Wayfair, Inc., the Supreme Court stated that states could force online shoppers to pay sales tax.

States had argued that they were losing massive amounts of money because they could not collect the taxes.

In a ringing endorsement of returning power to the states, the Court wrote, “Stare decisis can no longer support the Court’s prohibition of a valid exercise of the States’ sovereign power. If it becomes apparent that the Court’s Commerce Clause decisions prohibit the States from exercising their lawful sovereign powers, the Court should be vigilant in correcting the error.” “Stare decisis” means that the Court cannot ignore a determined standard and must uphold prior decisions when ruling on future cases.

The Court explained, “Under National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U. S. 753, and Quill Corp. v. North Dakota, 504 U. S. 298, South Dakota may not require a business that has no physical presence in the State to collect its sales tax. Consumer compliance rates are notoriously low, however, and it is estimated that Bellas Hess and Quill cause South Dakota to lose between $48 and $58 million annually.”

The Court stated, “Because the physical presence rule of Quill is unsound and incorrect,” Quill and Bellas were overruled. The Court added, “The physical presence rule has long been criticized as giving out-of-state sellers an advantage. Each year, it becomes further removed from economic reality and results in significant revenue losses to the States. These critiques underscore that the rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause.”

Vis-à-vis Quill, the Court stated that it “creates rather than resolves market distortions. In effect, it is a judicially created tax shelter for businesses that limit their physical presence in a State but sell their goods and services to the State’s consumers.” It added that Quill “imposes the sort of arbitrary, formalistic distinction that the Court’s modern Commerce Clause precedents disavow in favor of ‘a sensitive, case-by-case analysis of purposes and effects,’ West Lynn Creamery, Inc. v. Healy, 512 U. S. 186, 201.”

The formation of the two sides of the Court’s decision seemed a trifle odd, with Justice Ginsburg joining Justices Thomas, Alito, Gorsuch and Kennedy for the majority and Justice Roberts joining Justices Breyer, Kagan and Sotomayor for the minority.