Internet retailers face looming duty to collect out-of-state tax

Online shopping is hugely popular but not with state governments. For years, states have complained the Internet shopping boom is costing them billions in tax revenue thanks to a long-standing law that prevents them from taxing distant retailers. That’s set to change after a March 3 Supreme Court decision that opens the door wide for states to expand their tax collection powers, and that will likely affect Amazon as well as smaller Internet retailers.

In the ruling, Justice Anthony Kennedy said that the growth of the Internet means it’s time for the top court to revisit a 1992 decision called Quill, which held that states can’t force a business to collect tax in a given state unless it has a physical presence there. The ruling comes at a time when main street retailers are increasingly upset at online competitors who, they say, offer lower prices since they don’t have to charge tax. Those retailers have been pushing the Marketplace Fairness Act, a bipartisan bill that would eliminate Quill as an obstacle for out-of-state tax collection, but one that has repeatedly failed to pass Congress. But now the Supreme Court decision could make the Marketplace Fairness Act unnecessary. Instead, state governments may now be emboldened to simply write new tax collection laws, and then rely on Justice Kennedy’s words if they are challenged in court.