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Supreme Court's Online Sales Tax Ruling Gives States a Win

Boston Herald

By Kimberly Atkins

The U.S. Supreme Court delivered a likely multibillion-dollar revenue boon to states — from the pockets of online shoppers — ruling that states can require internet retailers to collect sales tax from online consumers.

States and retail groups hailed yesterday’s 5-4 decision by the justices, who took the unusual step of overturning past court precedent to rule against Boston-based online retailer Wayfair, which argued unsuccessfully that state laws forcing internet retailers to collect state taxes were unconstitutional.

Justice Anthony Kennedy wrote the court’s past precedent — requiring only retailers with a physical presence in a state to collect state sales taxes — was not only wrong, but also increasingly unworkable in an internet age.

“Each year, the physical presence rule becomes further removed from economic reality and results in significant revenue loss for states,” Kennedy wrote for the majority.

In a statement, Wayfair said it did not expect the ruling to have “any noticeable impact on our business,” since it already collects state taxes on roughly 80 percent of orders.

Gov. Charlie Baker said the effect in the commonwealth would be minimal because state regulations already create parity for Bay State retailers. But he called the ruling “the right decision.” A Department of Revenue official said no state windfall was expected by the ruling.

But the move could impact thousands of smaller retailers in Massachusetts and across the country as they try to comply with a labyrinth of differing state and local rules.

“Businesses large and small will need to adopt or ramp up their internal processes to meet the challenge of complying with thousands of state and local sales tax jurisdictions,” said Richard Jones, an attorney in the Boston office of Sullivan & Worcester.

Retailers cheered the decision.

“This ruling clears the way (for) all retailers to compete under the same sales tax rules whether they sell merchandise online, in-store or both,” said National Retail Federation president and CEO Matthew Shay.

Others warned that the ruling would cripple small businesses.

“The decision leaves e-commerce and especially small sellers extremely vulnerable to states gluttonous for tax revenue particularly from consumers and businesses with no representation in their state,” said Tom Giovanetti, president of the Institute for Policy Innovation.