The Supreme Court handed down a ruling Thursday granting states broad authority to require online retailers to collect sales tax on purchases in states where they have no physical presence – a potential win for struggling brick-and-mortar stores.
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The case, known as South Dakota vs. Wayfair, overturned a 1992 ruling made by the high court at a time when e-commerce made up a much less significant portion of the economy.
Brick-and-mortar retailers had argued that they were at a disadvantage under the previous law because they have to charge sales tax at the time of purchase, while online retailers did not in states where they had no physical presence or warehouse.
In a statement on Thursday, retail giant Target praised the ruling.
“Target has long advocated for sales tax policies that level the playing field and treat all retailers the same, whether they have stores, operate online, or both,” a spokesperson for the company said. “We are pleased the court’s ruling will close the loophole that has allowed online-only retailers to avoid collecting and remitting sales taxes while still requiring local businesses to do so.”
Walmart also praised the Supreme Court for “closing a loophole” that “produced an uneven playing field for main street businesses.”
The Trump administration backed South Dakota in the case, arguing that no one could have foreseen how rapidly e-commerce would expand.
“In light of internet retailers’ pervasive and continuous virtual presence in the states where their websites are accessible, the states have ample authority to require those retailers to collect state sales taxes owed by their customers,” U.S. Solicitor General Noel Francisco said in a friend-of-the-court brief.
E-commerce sales in the fourth quarter of 2017 increased to $119 billion, up more than 3% from the previous quarter and nearly 17% from a year earlier, according to U.S. Census Bureau data. Online sales comprised more than 9% of total sales in the U.S.
During an interview with FOX Business in April, National Economic Council Director Larry Kudlow suggested that changing the law could level the playing field between traditional and e-commerce retailers.
“There was a time when we wanted the United States, as a matter of policy, to protect nascent internet businesses by keeping down the tax burden, but that time is long gone,” he said.
After the ruling was issued on Thursday, brick-and-mortar stocks rallied while online retailers fell.
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