The United States Supreme Court issued a ruling in the case of South Dakota v. Wayfair on Thursday in favor of South Dakota. The ruling allows states to collect sales tax from Internet retailers when they ship products to customers in the state. In a 5-4 decision, Anthony M. Kennedy wrote the majority opinion and was joined by Ruth Bader Ginsburg and the three most conservative judges on the court.
The decision overturns a previous precedent established in 1992 in the case of Quill Corp. v. North Dakota, which established that the Commerce Clause in the United States Constitution prevents states from collecting sales tax in states where they don’t have a physical brick-and-mortar presence. Justice Kennedy wrote that the previous ruling was “unsound and incorrect” and added that the Internet revolution makes it even more necessary to reverse the previous decision.
Kennedy also added that when Quill was handed down, only two percent of Americans had access to the Internet, compared to now when an astounding 89 percent of individuals have online access. The court also said that when the Quill decision was handed down, they didn’t anticipate that the world’s largest retailer, Amazon, would dominate the market so much. E-commerce sales stood at 453.5 billion last year, while in 1992 they only made up $180 billion.
The primary issue in the case was whether the South Dakota law requiring out-of-state retailers to pay sales tax on purchases if they have at least $100,000 or 200 total sales was constitutional. Chief Justice John G. Roberts Jr. dissented with the majority opinion along with Justices Elena Kagan, Stephen G. Breyer, and Sonia Sotomayer.
The opinion says that the decision in Quill was wrong, but opposed eliminating the physical presence requirement because the Internet economy relies on current rules and regulations to function. Altering the rules could create upheaval in the industry, which is critical to the current economy.
Roberts also emphasized the complexity of implementing taxes on e-commerce sales since there are over 10,000 jurisdictions that collect sales tax with each having different rules and rates, making implementation cumbersome.
He noted that this was the third time the Supreme Court has heard about the issue of whether businesses without a physical presence in a state can collect sales tax on residents. The notion that “third time’s a charm” is a poor notion to use for decisions the Supreme Court makes.