The U.S. Supreme Court on Thursday cleared the way for states such as Georgia to collect sales taxes on most internet purchases, something that could prove a financial boon for governments but cost consumers millions.
Georgia, under a law passed during this year’s General Assembly session, can now with the high court’s blessing begin collecting taxes Jan. 1 on sales from internet retailers who currently don’t collect the levies. Companies with a physical presence in Georgia, such as Amazon, already collect sales taxes.
After the ruling Thursday, President Donald Trump tweeted: “Big Supreme Court win on internet sales tax — about time! Big victory for fairness and for our country. Great victory for consumers and retailers.”
But others who criticized the ruling said it could hurt small online retailers.
“This decision creates mountains of red tape for small businesses in New Hampshire and across the country, hurting their ability to grow and create jobs by selling on the internet,” said U.S. Sen. Jeanne Shaheen, D-NH.
States across the country have been tackling the issue in recent years. But they long ran up against a ruling the U.S. Supreme Court made more than 25 years ago in Quill Corp. v. North Dakota saying governments can’t force retailers to collect and remit taxes unless they have a physical presence, such as a store, in a state.
The Quill ruling came before the internet sales boom. In the court’s opinion Thursday, it noted that mail-order sales in the U.S. at the time of the original ruling were $180 million a year. Last year, e-retail sales alone were estimated at $453 billion.
Forecasters have predicted U.S. online retail sales could top $1 trillion a year in the next decade.
The Supreme Court reconsidered the issue using a law passed by South Dakota’s Legislature for the express purpose of testing its legality.
Writing for the majority in the 5-4 ruling, Justice Anthony M. Kennedy said: “The Quill Court did not have before it the present realities of the interstate marketplace, where the Internet’s prevalence and power have changed the dynamics of the national economy. The expansion of e-commerce has also increased the revenue shortfall faced by States.”
Brick-and-mortar retailers have long complained that they are at a disadvantage because they have to charge sales taxes on what they sell while many internet retailers do not. They say that allows internet retailers to undercut them on pricing products.
Georgia House Ways and Means Chairman Jay Powell, R-Camilla, the sponsor of the internet sales tax legislation that won passage this year, was pleased with the court’s decision.
“I think this is good for the citizens of Georgia because we will be collecting taxes equally, and good for businesses that will be able to compete on an equal footing,” Powell said.
But NetChoice — a trade group that represents the Chinese internet retail mammoth Alibaba, Overstock.com, eBay, PayPal and others — had asserted that Georgia’s new law raised privacy concerns.
Under the new law, online retailers who make at least $250,000 in sales or 200 individual sales a year in Georgia must either collect and remit to the state sales taxes on purchases or send “tax due” notices each year to customers who spend at least $500 on their sites.
The change could mean an extra $500 million to $600 million a year in sales tax collections for state and local governments, according to state estimates.
Powell said the taxes are already owed, but many online retailers haven’t collected them. Mega-retailer Amazon agreed to start collecting Georgia taxes several years ago. Other e-retailers that have physical locations — stores, distribution centers, etc. — have done so as well.
Bill Fogarty, who heads a group pushing to eliminate Georgia’s income tax, said he was “delighted” by Thursday’s ruling.
“For years, brick-and-mortar retailers have suffered at the hands of online sellers, not only from whatever superior service or features are offered by the online sellers, but by the tax exemption they enjoyed under previous law,” he said. “This decision corrects that. If online sellers provide a superior product, that’s the nature of competition, but they should not enjoy a legislated advantage in the tax code.”
But other groups said Thursday that the ruling could stifle small internet companies.
The American Legislative Exchange Council, an influential conservative group that writes model legislation often filed by Republican state lawmakers in Georgia and elsewhere, expressed disappointment with the ruling. ALEC filed a brief supporting the fight against the South Dakota law.
“Today’s Supreme Court decision will harm America’s innovators and small businesses,” said Jonathan Hauenschild, the counsel for ALEC on the case. “By permitting states to tax businesses outside of their borders, the Supreme Court’s decision will usher in a new, unheralded period in interstate commerce.
“Small businesses and innovators will be subject to over 12,000 taxing jurisdictions in the United States. They will face audits and compliance costs very few can comprehend. And many businesses will likely limit their reach or go out of business rather than face the risk of audit from states like California, Illinois, or New York.”
The group said Congress needs to “save small businesses and innovators by passing legislation to protect them from over-aggressive states.”
Internet sales figures
$453 billion – Estimated national e-retail sales last year.
$1 trillion-plus – Estimated U.S. online retail sales by the next decade.
$500 million-$600 million – What the state estimates state government and local governments could take in annually from an internet sales tax the Georgia Legislature approved this year.