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Supreme Court to decide if all online retailers must collect sales tax

A ruling in favor of the measure would increase costs for consumers from smaller retailers

Photo (c) kizilkayaphotos - Getty Images
The U.S. Supreme Court will hear a case this week that will determine, to some degree, what you pay for things purchased online.

At issue is whether online merchants collect your state's sales tax when it adds up your purchases. Forty states brought the case, arguing that online merchants that don't collect sales tax cost them billions of dollars in lost tax revenue.

In the early days of ecommerce, almost no online merchants collected sales tax, a savings for consumers that helped to offset shipping costs.

Previous court rulings

The Supreme Court has addressed this issue over the years, eventually ruling that merchants with a physical presence in a state must collect that state's sales tax when selling to a resident of the state.

That covered most large retailers, like Macy's and Walmart, because they have stores in nearly every state. In 2017, Amazon began collecting sales tax in every state that has one, even though it was not legally required to.

Congress weighed in on the issue last year, as a bipartisan group of senators introduced the Marketplace Fairness Act, legislation that would require all businesses selling online to collect sales tax for the state where the consumer making the purchase resides.

Most retailers support collecting sales tax

Small, independent online retailers have protested that requiring them to collect and pay sales tax for all states presents a hardship that could drive many of them out of business, but the National Retail Federation (NRF) supports a uniform collection of sales tax by all retailers, saying states are losing out on much needed tax revenue.

“This is a critically important issue for retailers – both large and small – across the country,” Mathew Shay, CEO of the NRF, said last year. “Both brick-and-mortar stores and e-commerce leaders understand that the Marketplace Fairness Act is common-sense legislation dedicated to protecting states’ rights, strengthening our communities and preserving our free market system.”

The Trump administration has also come down on the side of the states, arguing that all online retailers should pay state sales tax, as a matter of fairness. Treasury Secretary Steve Mnuchin told a Congressional hearing in February that Trump believes sales tax should be paid on all purchases, whether they are made in a brick-and-mortar store or online.

While the issue could eventually be addressed through legislation, 40 states are asking the high court to settle the issue once and for all.

Their case asks the justices to set aside the previous ruling that exempts some online retailers from tax collection responsibilities that give them a slight price advantage over the retailers that are required to collect sales tax.

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