U.S. Supreme Court rules in favor of internet sales tax

ATLANTA -- The U.S. Supreme Court has ruled that states can charge out-of-state e-retailers sales taxes on what they sell.

The 5-4 decision clears the way for states such as Georgia to collect taxes on internet sales, something that could prove a financial boon for state and local governments but cost consumers millions. Georgia could begin collecting sales taxes on all e-sales on Jan. 1.

Brick-and-mortar retailers have complained for years that they are at a disadvantage because they have to charge taxes on what they sell while many internet retailers did not. They say that allowed internet retailers to undercut them on pricing products.

Georgia House Ways and Means Chairman Jay Powell, R-Camilla, the sponsor of internet sales tax legislation in recent years, 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 the decision was criticized by those who see it as state intrusion into businesses, particularly small 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-N.H.

The Georgia General Assembly this year passed Powell's legislation aimed at making sure Georgians who buy goods from online retailers pay sales taxes on what they purchase.

Under the new law, online retailers who make at least $250,000 or 200 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, etc. -- have done so as well.

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 original ruling came before the internet sales boom. In the court's opinion, 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.

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 would have the potential to hurt small businesses and that it raised privacy concerns.

Georgia lawmakers, some business groups and local government associations supported the measure, saying it will help local stores compete.

The court's majority opinion, written by 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."

The American Legislative Exchange Council, an influential conservative group that writes model legislation often filed by Republican lawmakers, 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."

Story Filed By Cox Newspapers

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