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Supreme Court on the fence about online retailers charging sales tax

By on April 17, 2018

SAN JUAN – The U.S. Supreme Court appeared to be divided Tuesday on changing interstate commerce rules to allow states to collect sales taxes from online retailers, according to several stateside publications.

The court needs five votes to make the changes, but only four justices appeared to be willing to change the rules. The effort to even the playing field between online and so-called “brick-and-mortar” sellers was led by South Dakota. A final ruling is expected in June.

Several justices sympathized with the argument presented by South Dakota Attorney General Marty Jackley that states are losing revenue because many online retailers do not collect and remit sales taxes, and consumers do not pay them voluntarily, as happens in Puerto Rico as well.

The justices worried about the potential effect on small online retailers, if for example they were to overrule that companies must be physically present in a jurisdiction to be taxed. Some large retailers, such as Amazon, are already collecting the taxes.

By the end of the hearing, it appeared that Chief Justice John Roberts and Justices Stephen Breyer, Samuel Alito, Sonia Sotomayor and Elena Kagan could leave the current system in place.

According to USA Today, Alito acknowledged that South Dakota’s new law, which would exempt out-of-state retailers with less than 200 transactions or $100,000 in sales annually from having to collect sales taxes, represented “the most reasonable incarnation of this scheme.” But other states, he said, might try “to grab everything they possibly can” by having a lower threshold for exemptions or none at all.

Amazon to charge Puerto Rico sales tax

The other justices contended the current system is unfair to businesses that collect sales taxes on-site. Justices Anthony Kennedy, Ruth Bader Ginsburg, Neil Gorsuch and presumably Clarence Thomas, who remained silent, were in this camp.

“More Internet retailers are moving toward brick and mortar,” USA Today quoted Gorsuch as saying. “But again, why should this court favor those who don’t over those who do?”

That is what the high court decided in 1967 and in 1992 when it exempted mail-order catalog companies from having to collect the tax. But “times have changed,” South Dakota noted in court papers. Online sales reportedly are growing at four times the rate of total retail sales, and state and local governments in 45 states lose billions of dollars annually in taxes. (Alaska, Delaware, Montana, New Hampshire and Oregon do not have sales taxes.)

Jackley said the states are seeking to help not only themselves but businesses that must pay the sales taxes, and rejected some of the justices’ suggestions that Congress fix the problem because, as Justice Kagan said, “Congress is capable of crafting compromises,” according to USA Today.

The lawyer representing Wayfair, and Newegg said online retailers would have to deal with some 12,000 local tax jurisdictions if the court sides with the states, which would lead to a “chaotic period.”

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