June 25, 2018
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U.S. Supreme Court overturns precedent, rules states can collect sales tax on online purchases

States can collect sales tax from online retailers, even if those businesses do not have a physical, brick-and-mortar location in the state, the U.S. Supreme Court ruled last week in its South Dakota v. Wayfair case.

The 5-4 decision overturns the court's pre-internet 1992 Quill v. North Dakota decision, which said that if a business did not have a physical presence in a state, it was not required to collect a sales tax. The Tax Foundation takes a deep dive into the ruling.

That ruling was particularly significant in Washington, which depends heavily on sales tax revenue. Brick-and-mortar businesses are required to collect the tax, but many smaller online retailers are not subject to that rule. The 1992 decision had effectively made store-bought goods more expensive than out-of-state online retailers, said Mark Johnson of the Washington Retail Association.

The ruling could mean an extra $298 million to $453 million-a-year increase in Washington state tax coffers, The Puget Sound Business Journal reports. The Seattle Times, however, quotes David Schumacher, director of the state Office of Financial Management, who cautions that the tax ruling is "good news, but it's not a “windfall" for Washington.

Sen. Christine Rolfes, D-Bainbridge Island, chair of the Senate Ways and Means Committee, said the high court's ruling will probably require the Legislature to make some adjustments to a 2017 state law regarding online sales tax collection, Washington State Wire reports.

"As we plan for the 2019 legislative session, we now have an opportunity to further modernize our sales tax collections," Rolfes said. "Our state was ahead of the curve and, as a result, the effect of this ruling will likely be minimal on Washington consumers, but will undoubtedly be a net positive for state and local government revenue collections."

Opportunity Washington took a wide-ranging look at commentary about the Supreme Court's ruling, with a simple summary of the ruling: "A big deal."

Contact Clay Hill, AWB government affairs director for tax and fiscal policy, to learn more.

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