States Can Require Internet Tax Collection, Supreme Court Rules

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The U.S. Supreme Court freed states and local governments to start collecting billions of dollars in sales taxes from internet retailers that don’t currently charge tax to their customers.

Siding with states and traditional retailers on a 5-4 vote, the court overturned a 1992 ruling that had made much of the internet a tax-free zone. That decision had shielded retailers from tax-collection duties if they didn’t have a physical presence in a state.

Writing for the court, Justice Anthony Kennedy said the 1992 ruling, which involved catalog sales, was "unsound" and obsolete in the e-commerce era.

Broader taxing power will let state and local governments collect an extra $8 billion to $23 billion a year, according to various estimates. All but five states impose sales taxes.

Wayfair Inc. plunged as much as 9.5 percent on the news, and was down 7.5 percent to $107.45 at 10:20 a.m. in New York trading. Amazon.com Inc. dropped as much as 1.7 percent to $1,720.77; EBay Inc. dropped as much as 1.5 percent and Etsy Inc. fell as much as 4 percent.

The ruling will put new pressure on those companies and other internet retailers and marketplaces that don’t always collect taxes — including Overstock.com Inc., Newegg Inc. and thousands of smaller merchants. Overstock.com lost as much as 3.5 percent; while 1-800 Flowers.com Inc. dropped as much as 1.1 percent and online educational service Chegg Inc. dropped as much as 7.8 percent.

It will also affect Amazon, though the biggest online retailer wasn’t involved in the case. Amazon charges consumers in states that impose a sales tax, but only when selling products from its own inventory. About half its sales involve goods owned by third-party merchants, many of which don’t collect tax.

The court upheld a South Dakota law that requires retailers with more than $100,000 in sales or 200 transactions annually in the state to pay a 4.5 percent tax on purchases.

— With assistance by Alexa N Green

(Updates to describe impact starting in fourth paragraph.)The Securities and Exchange Commission filing is accessible at: W US Equity CF (for the company's Edgar filings) or W US Equity CN (for all company news)

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