In a 1992 ruling, the U.S. Supreme Court decided that a business must have a physical presence in a state in order for that state to collect Internet sales tax on online retail purchases. That case, Quill v. North Dakota, was looking at catalog and mail-order purchases, not online sales.
The Supreme Court, therefore, recently found that this ruling was obsolete in today’s e-commerce market and overturned it in a 5-4 vote. According to estimates, annual revenue for state and local governments could increase by $8 billion to $23 billion as a result. Amazon, the largest online retailer in the U.S., was already voluntarily collecting required taxes, but only on goods from its own inventory. Third-party sellers on Amazon may therefore be affected by the ruling.
The case was brought to the Supreme Court by the state of South Dakota after the state passed a law that retailers pay a 4.5 percent tax on all sales if they have either 200 or more separate transactions annually or more than $100,000 in annual sales.