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Will the Supreme Court Finally Put an End to the Sales Tax Loophole for Online Retailers?

Today millions of Americans will be paying attention as the Supreme Court is hearing arguments on whether to allow states to charge sales tax on items purchased online, regardless of whether the retailer has a physical presence in that state. A ruling in favor of change would mean billions of incremental tax dollars flowing into states’ coffers. South Dakota which brought the case to the courts is asking that sales tax be collected from any online retailer that has sales of more than $100,000 or processes more than 200 transactions.

"A ruling in favor of change would mean billions of incremental tax dollars flowing into states’ coffers."

The issue has been a point of contention for many in the retail industry for over a decade. For years retailers did not collect sales tax from customers outside states where they had a physical presence. As a result millions of consumers took to “showrooming” or visiting brick and mortar locations to decide what to buy and then buying online to save the sales tax. While that may not seem like significant savings, purchasing big ticket items would in some cases save hundreds of dollars in taxes which influenced consumers decisions on where to buy.

As a result, many brick and mortar retailers that generally had a physical presence in most, if not all states, cried foul over the exemption, citing that the online retailers had an unfair advantage.

Smaller businesses that operate primarily online without a physical presence in most states see it differently. They argue that changing the law would create among other things, added overhead to their operations. They say just updating systems to address the hundreds of different sales tax scenarios is not feasible for their business, and could in some cases force them to shut down their operations.

It’s a dicey proposition and no matter how the country’s highest court rules, there will be many that are unhappy with the decision. Is it ironic or fitting that the court chose to hear these arguments on tax day 2017? For now it’s business as usual but that could change soon and only time will tell what the true impact really is.

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