WASHINGTON - A divided Supreme Court ruled Thursday that states may require online retailers to collect billions of dollars of sales tax revenue owed to them.
The decision was 5-4.
More than 40 states and the Trump administration asked the Supreme Court to overturn its 1992 decision in Quill v. North Dakota that restricts states from collecting sales tax from retailers without a physical presence in those states. They said a decision in a case involving mail-order catalogues is obsolete in an era of e-commerce.
After Justice Anthony Kennedy, who wrote Thursday's majority decision, had said the court should reconsider the decision, South Dakota took up the challenge.
It passed a law requiring retailers with more than $100,000 in annual sales or 200 transactions in the state to pay a 4.5 percent tax. Although technically consumers are required to pay sales tax on all purchases, it is practically impossible to collect without the retailer applying it at the point of sale.
A Government Accountability Office audit said states missed out on about $13.7 billion in tax revenue in 2017.
Retailers said overturning Quill would allow states to go far beyond the model legislation that South Dakota passed, requiring collection by retailers with a single sale in a state or perhaps trying to force the companies to comply retroactively.
Congress, the retailers argued, could implement national rules rather than open up the companies to having to deal with the specific requirements of what they say are 12,000 taxing jurisdictions nationwide.
They also said it was a problem that was shrinking rather than expanding.
More retailers are collecting, including 19 of the 20 largest, regardless of whether they have a physical presence in the state, according to briefs filed in the case. Included in that group is Amazon, as well as Walmart, Target and Apple. (Amazon CEO Jeff Bezos owns The Washington Post.)
Three large retailers - Wayfair, Overstock and Newegg - do not, and South Dakota sued them for failing to collect taxes after the state's law went into effect.
Although in the past Americans may have purchased online to avoid paying sales tax, they are increasingly shopping online to get items quickly and without having to leave the house, retail experts say.
The case is South Dakota v. Wayfair.