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The Supreme Court gives e-commerce a reality check

The Supreme Court ruling will force most online

The Supreme Court ruling will force most online retailers to collect sales taxes. Photo Credit: Getty Images / Toya Sarno Jordan

Perhaps the internet finally has lost its new-car smell.

The Supreme Court’s ruling Thursday that will force most online retailers to collect sales tax is a sign of just how much e-commerce and digital interaction have grown in the last 15 years. The case will have far-reaching implications for consumers.

The 5-4 decision involved South Dakota’s attempt to collect taxes from Wayfair, the popular home goods site that boasted about not charging taxes. The state’s case was a campaign to overturn a 1992 ruling that costs states and local governments billions of dollars in revenue by requiring internet retailers to collect sales tax only if they maintained a physical presence in a state. In overturning that case, Justice Anthony Kennedy, in the majority opinion, said the earlier ruling distorted the nation’s economy by putting local sellers at a competitive disadvantage.

The dissenting justices said Congress had the power to change the bricks-and-mortar loophole, but didn’t. Now Congress must provide clear rules to allow internet sales to flourish but make tax-collection requirements uniform.

While some internet retailers, including Amazon, charged sales tax in New York, in part because they had a physical space here, many others did not. The decision also will affect purchases from third-party sellers that partner with or use sites like Amazon. Until now, they haven’t charged sales tax in New York. While Gov. Andrew M. Cuomo proposed an “internet fairness conformity tax” for those third-party sellers in his state budget this year, lawmakers rejected it.

The decision could level the playing field a bit for traditional brick-and-mortar retailers, especially on items with larger price tags, since there will no longer be a tax incentive to shop online. But the ruling also might signal a much larger message. Coming on the heels of calls for Congress to regulate Facebook, the ruling serves as yet another sign that online businesses, no matter which industry and no matter how large, might no longer operate in their own free-for-all universe.


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