States Can Tax Amazon Marketplace

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Supreme Court rules that states may require online retailers to collect sales taxes

Twenty-three states have already joined the Streamlined Sales and Use Tax Agreement (SSUTA), and we expect more to do so in light of today's ruling.

Jewelers of America (JA) says it applauds the decision by the United States Supreme Court to uphold South Dakota's sales tax fairness law and overturn the 1992 decision in Quill Corp. v.

"The National Association of Realtors has long held that our nation's tax policy must be modernized to reflect new realities in consumer activity".

But most of Amazon's purchases are from millions of independent merchants who post inventory on the webstore, and many of those sales now are not taxed, and 3rd-party merchants account for about 50% of Amazon's total online sales. Some states have a base sales tax set at 2.9% while others have set theirs as high as 7.25% and even 10.5%.

Amazon stock is down over 1.2%.

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The cases the court overturned said that if a business was shipping a customer's purchase to a state where the business didn't have a physical presence such as a warehouse or office, the business didn't have to collect sales tax for the state. In fact, the International Council of Shopping Centers and the National Conference of State Legislatures have estimated that the loophole cost state and local governments $26 billion in lost revenue in 2015. Some experts have noted that the emphasis placed by the justices on South Dakota's law provides small online businesses with some protection as only sellers that engage in transactions of 200 or more or those that deliver goods worth more than $100,000 will be taxed.

State and local governments had grown increasingly agitated as sales from brick and mortar retailers gave way to online retail, which now comprises approximately 9.5 percent of the dollar value of total purchases. But its third-party sellers haven't been required to do so and thus will feel the impact of the court's decision.

"Any adjustment to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress", the chief justice wrote. Income taxes can be more progressive, but they also hurt the economy as rates rise, and income tax revenue volatility in recessions has worsened the severity of state budget crises. Ten states require out-of-state sellers to notify buyers and inform states of the unpaid sales taxes.

Kosewicz says for her, sales may not reach the threshold in each state. "In effect, it is a judicially created tax shelter for businesses that limit their physical presence in a State but sell their goods and services to the State's consumers, something that has become easier and more prevalent as technology has advanced". Roberts argued that the decision isn't one that should be decided by the Supreme Court.

Information for this article was contributed by Greg Stohr, Alexa Green, Molly Schuetz and Spencer Soper of Bloomberg News and by Adam Liptak of The New York Times.

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