The Supreme Court just ruled that states can collect sales taxes from internet sales and shipments. Previous sales taxes could only be collected from a business with a physical presence in that state.  The 5-4 majority decided this was simply a recognition of the changing nature of commerce. This is similar logic applied by Justice Brandeis when he ruled that an unauthorized wiretap was just a technical update to the laws unwarranted search and seizure. The framers did not foresee wiretaps either.

The ruling was mostly favored by conservatives and dissented by liberals, although Ruth Ginsberg rules with the conservatives and Roberts dissented with Breyers, Kagan and Sotomayor.  The dissent claimed this should be remedied by Congress, not the courts. In this case the conservative justices are the activists and the liberal justices are the ones favoring judicial restraint.

Local governments that depend on sales tax revenue for a portion of their budget suffer revenue loss when a product is bought online rather than at a local business with a physical footprint. The loss to businesses is likely overrated because much of what is bought online may not be available locally. Convenience is often a greater incentive for an online sale than price.

Amazon is a large portion of online sales.  When an item is shipped from an Amazon warehouse sales taxes are collected. Amazon partners sell their products through their online website but do not ship from Amazon’s warehouse. Partners who ship direct, not through Amazon, usually do not collect sales taxes.  Partners are required to comply with Amazon standards for service, packaging and shipping.

Many small businesses that ship online will be hurt by this ruling. Complying with the tax codes for 48 states that charge sales tax will be crippling for many of them.  There will be a need for a third party to manage the sales tax issue for thousands of small online businesses. This will likely serve to make Amazon and other large online retailers bigger and more powerful in the internet sales arena.

In Forbes Laurence Kotlikoff writes Did The Supreme Court Potentially Bankrupt Tens Of Thousands Of Small Online Businesses?  He recommends a single sales tax federally controlled to distribute the proceeds properly and reduce the compliance burden on small businesses.  I find this a cumbersome solution. State departments of revenue already have difficulty accounting for proper distribution of local sales taxes paid to the state.  I also suspect once the feds get their hands on state sales taxes they will begin to want a piece of it beyond mere administrative costs. Third party service and software solutions will likely fill this gap quicker and with a lower cost.

This ruling will help state and local revenue shortfalls, but I doubt it will materially benefit local business.