What the Supreme Court’s decision on internet sales tax means

The U.S. Supreme Court’s trailblazing decision on internet sales tax is a win for state and local governments, as well as brick-and-mortar businesses.

The 5-4 ruling on the case of South Dakota v. Wayfair, Inc. declared that internet retailers can be required to collect sales taxes, even if the retailer has no physical presence in the state. This reverses several outdated rulings made before the vast online marketplace of today.

States were previously unable to tax purchases made out of state and shipped in state. Although, for tax-free items bought online or in another state, consumers were to pay a use tax on the purchase in their home state. This was highly ignored, and states have missed out on billions worth of revenues.

So, what does this new Supreme Court decision mean for Arizona’s economy?

The federal Government Accountability Office estimates that Arizona could pick up between $190 million and $293 million per year by taxing online sales. This money would be spread through the state’s general fund, cities and counties.

Individual states have the power to define the nexus, the determining factor to whether a company is liable for collecting taxes into the state. Many Arizona lawmakers are hoping to capitalize on the Court’s ruling. House Speaker J.D. Mesnard has been vocal in his support for closing the current tax loophole.

“Conceptually, and I’ve already spoken out publicly in the past in support of a much more fair sales tax system, we would apply it to internet as we do to brick-and-mortar,” Mesnard said.

All companies would owe taxes to the state as local businesses always have, creating an even playing field for all.

Although, there are concerns as to how this will affect micro businesses and third-party sellers on websites like Amazon and Etsy. These companies would be greatly affected by higher product prices and compliance costs. Protection may be needed to ensure these small businesses have the opportunity to grow and fairly compete.

The Arizona Department of Revenue is now in charge of determining the details of the tax and deciding how small is too small. However, with the complexities of taxation and how certain products may be taxed, many are calling for federal legislation. Congress is expected to step in and more clearly define rules, recognize the differences between large and small-scale operations, and avoid placing undue burdens on e-commerce.

It may be too early to tell how this will play out across the country, but with reasonable legislation and rules for taxation, this modernized approach to taxing internet sales is paving the way for the digital economy.