U.S. Supreme Court creates level playing field for sales tax collection

In a landmark ruling, the U.S. Supreme Court today reversed a 26-year-old decision and ruled that states can require internet retailers to collect sales and use tax in states where they lack a physical presence. (Read the opinion)

“The U.S. Supreme Court has ruled that online-only sellers should have to play by the same rules that in-state retailers do. Local retailers have been playing by the rules and collecting state sales tax on every purchase, every year since the Supreme Court’s original decision,” said Rick Brown, president of the Alabama Retail Association. “This is a victory for Alabama’s Main Street retailers. No longer will the federal government select winners and losers in the retail industry. Our 4,200 retail members and our association have advocated for this decision for decades.”

Justice Anthony Kennedy, who wrote the majority opinion in the 5-4 decision, said the 1992 decision, known as Quill, resulted in “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.”

From 1992 to 2018, internet and mobile sales have grown from zero to nine percent of all retail sales, according to the U.S. Census Bureau. Online sales are growing at four times the rate of total retail sales – 16 percent vs. 4.4 percent. The pre-internet era physical presence rule put “local businesses … at a competitive disadvantage relative to remote sellers,” and it “produced an incentive to avoid physical presence in multiple states,” Kennedy wrote in his opinion.

Thanks to today’s decision, Brown said, “Out-of-state, online-only businesses will no longer have an unfair advantage over our friends and neighbors who own local businesses. This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both.”

The Alabama Retail Association will continue to follow and report to its members how this landmark decision will affect their day-to-day business.