The United States Supreme Court is currently in the midst of a case that could potentially require consumers to pay sales tax on all online purchases. Amid arguments in the court case South Dakota v. Wayfair on Tuesday, April 17, the justices have been discussing online retailers and whether they should charge sales tax on all purchases, including those from online, nonphysical stores that do not have offices.
If passed, this decision could prove immensely expensive. In 2017, states could have garnered as much as $13.4 billion in added sales tax from online purchases, as reported by the General Accountability Office.
Sales tax as a revenue source is steadily becoming more important to state governments as citizens do more online shopping as opposed to in-person. Currently, online shopping only constitutes 9 percent of all retail sales, but it is growing rapidly.
Some of the largest online retailers, like Amazon, pay sales taxes already because they have enough of a tangible presence in most states with their system of connected warehouses and transportation facilities, according to CNN.
However, many smaller online retailers, such as home decoration websites like Wayfair and Overstock.com, don’t have enough widespread networks to be susceptible to tax law, giving them a hefty price benefit over traditional physically present companies. A few justices worried that allowing states to disregard borders in pursuit of collecting sales taxes could establish a messy legal situation and ceaseless litigation. Justice Sonia Sotomayor said to Marty Jackley, the attorney general of South Dakota, “It’s not the merchants that pay the tax, it’s the consumer. So, find a way to collect from them.”
Later in the argument, Justice Ruth Bader Ginsberg noted that many states have had a hard time tracking information about who has bought what products online.
“In the real world, it’s much more likely to yield funds if you go after the seller than if you go after the consumer,” she said.
Other justices were additionally concerned that the possibility of remitting sales taxes to around 12,000 jurisdictions at different rates on countless products would be immensely expensive, causing companies already on top to stifle competition from smaller businesses, according to The Atlantic.
Justice Stephen Breyer said, “The hope of preventing oligopoly is small business.”
Other justices noted that concerns should not be for new online businesses, but for physical companies that are steadily being deferred for online retailers that offer similar products with no sales tax.
Some justices, such as Ginsberg and Neil Gorsuch, seemed to agree that requiring sales tax collection for each and every business would even the rules, rather than make it unfair, reported The New York Times. Another concern was whether the court should let Congress fix the problem, although this branch of government has taken little action since the previous court ruling regarding this matter in 1992. Justice Elena Kagan said that legislators would be more suited than the judiciary to “craft a compromise.”
A bill that would follow the states’ requests has been introduced in the last few sessions of Congress, but has not gotten a vote.
Editor’s Note: Information from The Atlantic, CNN and The New York Times was used in this report.