Supreme Court Could Rethink Online Sales Tax

John Lister's picture

A Supreme Court judge says its time to re-examine laws that make it difficult or impossible to impose sales tax on many online sales. The decision could mean some states start collecting the tax without waiting for the law to change.

Justice Anthony Kennedy made the comments in a Supreme Court ruling on a case involving the way Colorado attempts to collect sales taxes from companies based outside the state that sell goods to Colorado residents. At issue is Colorado's policy that any firm which does not collect and pay such taxes must provide extensive paperwork anyway.

The ruling itself was about the legal procedure, rather than the principle or practicalities of sales tax. The Supreme Court says firms that want to challenge Colorado's reporting rules can do so in a federal court. A previous ruling held that the challenge could be done in state court only.

Rules Decided In Mail Order Era

However, in giving his formal comments on the ruling, Kennedy directly addressed the key legal principle for online sales taxes. Currently, states cannot force companies based elsewhere to collect and pay sales taxes, even when shipping to a customer in a different state. That's the result of a 1992 case, Quill Corporation vs North Dakota, which related to mail order catalogs.

According to Kennedy, that case is now so outdated that it's time for the Supreme Court to rule on the issue with online shopping in mind. He says that's needed because so much more money is at stake today. He noted that in the year of the Quill case ruling, mail order sales in the US were $180 billion. Today online sales in the country add up to $3.16 trillion, nearly 20 times as much. (Source:

Kennedy also argued that the ease of ordering online means "a business may be present in a state in a meaningful way without that presence being physical in the traditional sense of the term."

Judge To Lawyers: Bring Us A Case

The case this week wasn't closely related enough to the Quill case for the court to consider reviewing or overturning the legal principle of out-of-state customers not paying sales tax. However, Kennedy directly appealed for lawyers to find a new case that hinged on the Quill ruling and pursue it to the Supreme Court so that the Justices can readdress the issue.

From a legal perspective, Kennedy's comments have no effect on states or retailers. However, some analysts believe it is such a strong indication that the Supreme Court might modify or reject the current rules that states might take it as a sign to force the issue. It's possible some states may start trying to collect sales taxes from out-of-state retailers and challenge those retailers to take the issue to court. (Source:

What's Your Opinion?

Should states have the right to collect sales taxes when residents buy from online retailer based in other residents? Is a legal principle established in 1992 sufficient for the technology of 2015? Do you fear paying more for online shopping if the Supreme Court changes the sales tax rules?

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Dennis Faas's picture

With the exclusion of local grocery stores and the odd trip to Walmart, I purchase just about everything I can online (Amazon, ebay) and have it shipped to a cross border town (Detroit, Michigan). is incredibly useful for comparing prices of different brands based on user feedback, and because of the competition between vendors, prices are usually low.

In Canada, the price of purchasing almost anything in store (groceries excluded) are usually twice as much than in the USA. Flash forward to this year and the USD to CAD exchange rate is 25% higher than it was 4 months ago. Add to that a 13% tax to import items at the border, and it really starts to eat away at your budget. If they add sales tax to the mix then I will certainly shop less - and I'm sure I'm not the only one to say that.

01dyna_4201's picture

It seems that every time we turn around, we're getting taxed for *another* service. States are already getting on the bandwagon charging tolls on *federal* highways...roads our taxes already paid for. Now this? What next? Will states stop residents at state borders to inspect for any items purchased in a tax free state? How about international mail orders? It's all getting out of control.

doulosg's picture

What concerns me with this story is the idea of Justice Kennedy casting about for an opportunity to establish a ruling according to his ideas of right and wrong. It sounds very close to a usurpation of legislative prerogative. Some criticize the courts for "making law." This seems like a perfect and public example of how it is done.

gmthomas44_4203's picture

Justice Roberts "A fine is now hereby a tax". All they have to do is redefine whatever they think is appropriate? That's how it works now, it looks like.

steve1's picture

What everyone seems to ignore is that the full title in most states that have a sales tax is something like "Sales and Use Tax". If you buy something in another state and don't pay local sales tax, YOU STILL OWE THE TAX to your state.

All that is new is that the states are trying to find a way to collect the sales/use tax that you *do* owe. This is not a new tax.

mwtimpe_4207's picture

It's about time. Brick and mortar stores are where one can try on or examine purchases and they pay wages to their employees. The employees spend their income at other stores and on and on. YOU save money, but without local jobs you are just a freeloader.

When you buy everything on line you not only don't pay sales tax on your items, you avoid contributing to the School Aid fund in the state of Michigan. If a ballot proposal passes in May you also avoid paying to fix the roads in Michigan. All of the on-line sellers have to deliver physical products, usually by truck. Weight, snow, rain, ice and cold damage roads.


magicmusicpro's picture

When I was born into this country in 1947, I inherited no obligation to provide the government whatever (increasing) percentage of my income that it ever wanted. Nor did I incur an obligation to forever provide for your economic well-being -- you're responsible for that. My spending is my business, and in a capitalist economy I am self-obligated to find the best price for whatever product or service i purchase.

I too am from Michigan and recognize that our roads are worse than terrible, and that our state government has been responsible since it's inception to provide basic services. We've been paying taxes all along for those services. We should not have to pay even more to the state to motivate it to actually do the job that it continually has refused to do. Its job is to allocate resources to provide those services -- not just take more money from the economy every time that it wastes funds on lobbyist's pet projects.

dunsw_4318's picture

Not a question of any of it being free. You pay for the connection,use tax. And the utility tax. Every version of use either your phone or home each are taxed. Does it really matter though cause like Microsoft can't answer if there software will work offline with no internet. It will get to a point that nobody will use the net. Because it will cost too much money. Not to mention there is no privacy. As for the school aid, what happen to the lottery money to be generated for schools. Did you ever notice that children is the number one way to pass just about anything. In all of progress,there is a price to be paid. That's fine. But when you look to use something that works to make up for what has been failing for years cause of mismanagement... Oh yes and the roads, no matter how much money you spend they will only last 5 years. Even if not one car or truck passes over them. Why cause then there is no need for those jobs. In my life I have only seen gas drop in price. Because it has nothing to do with Wall St. Or the US Government.

matt_2058's picture

If the court is going to get involved in tax reform, then it should involve a complete overhaul.

We do live in a new world when it comes to those rules based on limited transportation and access to outside markets. The tax WAS to support an area's needs muchly correlative to population. Now sales tax is used to fund commercial developments that promise jobs.

I'm interested in how any entity is going to try to force another to collect tax on its behalf...local, county, or state-wise. That will be a war between states. If it's going to be collected, why not keep it? That is how it works now. Anything different will put undo burden on the business. Can you imagine a small online business needing to maintain and apply a CURRENT tax-rate database of each and every suburb in this country?

Keep it simple. Tax should be collected where the business sells the product from. Not the corporate HQ. Like Mr Faas, I shop with taxes in mind. My parish has the highest rate allowed in LA, but no municiple improvements to show for it. Why would I contribute to that? I mostly shop in the next town or next parish and I do not buy local if advantageous for me.

matt_2058's picture

If communities want the tax revenue, they need to do something to get it. Attract businesses. Attract consumers. You want tax money, host the business. You want the jobs, host the industry. Make local shopping attractive. No free lunch, no NIMBY attitudes.

You can't be a sleepy bedroom community and collect taxes from something you don't permit. You want to be small-town.....stay small-town. You can't collect the tax for something you won't allow. Or for something you don't provide.

magicmusicpro's picture

I'm incensed that Kennedy (SCOTUS) is asking lawyers for an excuse to allow SCOTUS to make new law. The Congress is, by definition, the govt body charged with making laws -- NOT the courts. This invitation is bordering on illegality.

As presented in this article, it clearly seems as though SCOTUS sees a huge pile of money ripe for the taking.

After this intrusion, the court should recuse itself from any subsequent case of this nature.

guitardogg's picture

Okay, I feel that sales taxes are the fairest of all taxes. No deductions, no loop holes (online issues not withstanding), so low income people who don't buy much don't pay much sales tax. Rich guy buys a lot of expensive stuff, pays a lot. Fair. Now I love getting the online buyers double bonus, free shipping and NO SALES TAX! However, I'd gladly pay more sale tax (including online orders) if they'd get rid of income tax, which favors the rich! If you have to keep income tax, and least make it a flat tax so it fairly applied to all!!!

samuel_k3_1's picture

Okay, I feel that sales taxes are the fairest of all taxes, But the internet is a FREE use, so it being free, then why should States be able to Collect Taxes, on what may be bought on line. The STATES already have Money that is SUPPOSED to be used for certain jobs (Lottery for Education, Gas taxes for Road Repair) and Nothing is being improved, Why make a tax on the internet purchases, So the FAT Cats can Line their pockets, by increasing their Wages, and the States still se NO improvements