Supreme Court decision clears way for state tax on internet sales

By Elizabeth Hewitt
VTDIGGER.ORG

A decision handed down by the United States Supreme Court clears the way for Vermont to collect taxes on internet sales from companies that do not have a physical presence in state.

In a 5-4 ruling, the high court last week overturned a decades-old case that had barred states from requiring companies without a brick-and-mortar presence to charge sales tax.

The Vermont Tax Department estimates the ruling could result in the state netting between $3 million and $10 million next fiscal year. In subsequent years, the state could bring in between $5 million and $15 million from online sales tax revenue.

The Supreme Court ruled in favor of South Dakota in a case against online retailers Wayfair, Overstock.com and Newegg, who did not comply with a sales tax law. The ruling overturned a previous decision.

Justice Anthony Kennedy, writing for the majority, wrote that the precedent-setting decision in the 1992 case Quill Corporation v. North Dakota puts businesses that have a physical presence within state boundaries “at a competitive disadvantage.” Businesses out of state can offer “de facto” lower prices simply because customers don’t have to pay sales tax.

“In effect, Quill has come to serve as a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a State’s consumers — something that has become easier and more prevalent as technology has advanced,” he wrote.

Justices Ruth Bader Ginsburg, Clarence Thomas, Neil Gorsuch and Samuel Alito concurred. Justices John Roberts, Stephen Breyer, Sonia Sotomayor and Elena Kagan dissented.

The ruling paves the way for Vermont to require out-of-state online retailers to begin collecting sales tax on transactions in Vermont.

Vermont has already made efforts to collect sales tax on online sales. Last year, the state sent letters to 18,000 Vermonters asking them to pay taxes on goods they bought online.

In areas with a local option tax, retailers will also be required to collect that as well.

Any business that within a year does either at least 200 transactions or more than $100,000 of sales in Vermont will be required to collect the tax.

Samsom said the Tax Department will be working with legislative fiscal analysts and economists for more accurate estimates of the impact on state coffers.

“It’s a small part of the total sales and use tax revenue, but it’s significant,” he said.

Meanwhile, many locally owned businesses had hoped for a change in the sales-tax law.

Robert Kasow, co-owner of Bear Pond Books in Montpelier, said last week that he felt the lack of a sales tax requirement on out-of-state retailers – primarily online retailers – put those competitors at an “unfair advantage.”

“We don’t mind competing but we do mind competing when the playing field isn’t level,” Kasow said.

Vermont’s Congressman, Democratic Rep. Peter Welch, hailed the ruling as a way to make business conditions more fair for local merchants like Bear Pond that are already required to charge and collect sales taxes.

“When a consumer can walk into a downtown store, try out a product, then go home and buy it online at a lower price, Main Street stores lose out,” Welch said. “This decision levels the playing field and will help Vermont’s downtowns thrive.”

The Citizen added to this report.

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