Oregon Sen. Ron Wyden, the ranking Democrat on the Senate Finance Committee, said the ruling is bad for small business, as it opens the door for states to establish a "privatized tax-collecting bureaucracy".
Companies like Avalara could benefit from a series of new laws that introduce more regulations that online retailers are forced to comply with. That's when the U.S. Supreme Court last ruled on online sales.
Seattle-based Avalara helps companies comply with sales tax laws throughout the US and the world using automation software.
The high court called the 1992 decision limiting states' ability to tax online retailers "unsound and incorrect". Now, rivals will be charging sales tax where they hadn't before. Justices Ruth Bader Ginsburg, Clarence Thomas, Samuel Alito and Neil Gorsuch joined his opinion.
The case is South Dakota v. Wayfair, 17-494.
"The physical presence rule has always been criticized as giving out-of-state sellers an advantage".
Sellers that have a physical presence in only a single state or a few states have been able to avoid charging sales taxes when they shipped to addresses outside those states.
E-tail giant Amazon had been a focal point of complaints over Internet sales taxes until, in recent years, it instituted tax collection for all states charging sales tax.
"The internet has had an unfair advantage against stores for a number of years". "The expansion of e-commerce has also increased the revenue shortfall faced by states seeking to collect their sales and use taxes, leading the South Dakota legislature to declare an emergency". South Dakota's law requires out-of-state sellers who do more than $100,000 in annual business in the state or more than 200 transactions with that state's residents to collect sales taxes.
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Chief Justice John Roberts offered the dissenting opinion, along with Justices Stephen Breyer, Elena Kagan, and Sonia Sotomayor.
The case the court ruled on involved a 2016 law passed by South Dakota, which said it was losing out on an estimated $50 million a year in sales tax not collected by out-of-state sellers.
"Quill established two different sets of rules governing the collection of sales taxes that left traditional retailers badly disadvantaged against their online peers".
In anticipation of the ruling, IL lawmakers included language in budget bills passed last month to allow the state to begin collecting sales tax from a broader swath of online purchases.
The burden will fall disproportionately on small businesses. Lawmakers in the state, which has no income tax, passed a law created to directly challenge the physical presence rule.
FMI's Harig said, "We look forward to working with the states and Congress as they seek to outline the terms under which states can collect these taxes". The Small Business & Entrepreneurship Council advocacy group said in a statement, "Small businesses and internet entrepreneurs are not well served at all by this decision".
A resolution of the "antiquated sales tax rules" was overdue given their impact on competition in the rapidly changing retail landscape, according to Laura Strange, vice president of industry relations, communications and marketing at the National Grocers Association.
"Will states step forward and pass laws similar to South Dakota?" asked Annette Nellen, director of the Masters in Science in Taxation program at San Jose State University, on Thursday.
Retail trade groups praised the ruling, saying it levels the playing field for local and online businesses.