US states can tax e-commerce Supreme Court rules, echoing Australia

by John Kehoe

The United States has followed in Australia’s footsteps by strengthening rules to capture more sales tax from online retailers.

In a landmark ruling backed by physical retailers decimated by cheap and speedy competition from online rivals, the highest US court decided that states can impose sales tax on e-commerce transactions.

The decision overturns a 1992 precedent that stopped states forcing retailers to collect sales tax unless the merchants had a physical presence in the same state.

The ruling means states could begin to recoup some of the estimated $US34 billion they have been missing out on annually by not collecting a turnover tax on some digital transactions.

Share prices of e-commerce companies fell in reaction to the historic 5-4 Supreme Court decision, including Amazon, eBay, Etsy, and Wayfair.

The narrow majority of judges opted to update the tax case law to level the playing field for bricks and mortar retailers and in recognition of the growing digital economy.

Tom McGee, chief executive of lobby group, the International Council of Shopping Centers, said the court had handed a victory to bricks and mortar retailers who were operating on an unlevel playing field against e-commerce rivals.

“This is fundamentally a victory for free market principles and levels the playing field,” he said.

E-commerce and low-tax advocates criticised the decision and called on Congress and state legislatures to rewrite the laws for the internet age.

The US decision comes just weeks after Amazon blamed the Turnbull government’s new tougher goods and services tax regime for its decision to block local consumers from buying products from its overseas e-commerce sites.

Amazon implied it was too onerous to upgrade systems to calculate and collect the 10 per cent GST due on sales to Australia from its US and European operations.

The government estimates the new GST laws will raise about $300 million a year, but online retailers including Amazon, eBay and warned last year the plan was “unworkable” and could lead to them blocking Australian buyers.

In the US, Amazon and some other online shopping sites do charge sales tax in some states, but they typically do not collect a turnover tax when third party sellers use their digital platforms.

The court ruling is part of a global wave of governments trying to collect more revenue from digital sales.

The European Commission has called for a 3 per cent digital tax on online turnover.

One of the dissenting conservative US judges, chief justice John Roberts, warned the decision of his colleagues could have big consequences for the economy and should be left for elected politicians to determine.

“E-commerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule,” Mr Roberts wrote.

“Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress.”

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