Alabama retailers, the state and municipalities are expected to benefit financially from Thursday’s U.S. Supreme Court ruling that states can force online retailers to pay sales tax, a local state senator said.
The 5-4 ruling keeps Alabama’s sales and use tax law in place and allows the state to continue collecting from the country’s largest online retailers such as Amazon and Walmart, state Sen. Arthur Orr, R-Decatur, said.
Orr, who serves on three of the Legislature’s finance committees, said the ruling could mean more people will shop locally instead of online because they’ll no longer benefit from not having to pay a sales tax for goods purchased online.
“This is affects everybody,” Orr said. “People are buying online instead of locally because they don’t have to pay the 9 percent sales tax. Maybe this will help local retailers recoup some of the sales they lost to the internet.”
Orr said local retailers often run into the issue of people visiting the store to look at a product of interest, check the price and even take photos, but then leave and order the product online to avoid paying a sales tax.
This creates an unfair advantage for online retailers that don’t have to submit a sales tax, pay a property tax, hire employees and pay a lease or mortgage as the local retailer has to do to operate, Orr said.
Alabama has deals with these large retailers in which they pay an 8 percent sales and use tax to the state. The state keeps 4 percent of the revenues from the tax while municipalities and counties each get 2 percent.
However, many smaller companies are not paying this tax, and Orr said the Supreme Court ruling should change this. This would create additional revenues for the state.
Alabama Retail Association President Rick Brown called the ruling "a victory for Alabama's main street retailers. No longer will the federal government select winners and losers in the retail industry. Our 4,200 retail members and our association have advocated for this decision for decades.”
The Associated Press reported Thursday that the ruling is a win for states, who said they were losing out on billions of dollars annually under two decades-old Supreme Court decisions that impacted online sales-tax collections.
The high court ruling overturned those decisions. They had resulted in some companies not collecting sales tax on every online purchase.
The cases the court overturned said that if a business was shipping a product to a state where it didn't have a physical presence such as a warehouse or office, the business didn't have to collect the state's sales tax.
Customers were generally supposed to pay the tax to the state themselves if they don't get charged it, but the vast majority didn't.
The AP reported Justice Anthony Kennedy wrote that the previous decisions were flawed.
“Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the states. These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause,” he wrote.
In addition to being a win for states, the ruling is also a win for large retailers, who argued the physical presence rule was unfair, the AP reported.
Retailers including Apple, Macy's, Target and Walmart, which have brick-and-mortar stores nationwide, generally collect sales tax from their customers who buy online. That's because they typically have a physical store in whatever state the purchase is being shipped to.
Amazon.com, with its network of warehouses, also collects sales tax in every state that charges it, though third-party sellers who use the site to sell goods don't have to.
But sellers that only have a physical presence in a single state or a few states could avoid charging customers sales tax when they're shipping to addresses outside those states.
Online sellers that don't charge sales tax on goods shipped to every state range from jewelry website Blue Nile to pet products site Chewy.com to clothing retailer L.L. Bean. Sellers who use eBay and Etsy, which provide platforms for smaller sellers, also aren't required to collect sales tax nationwide.
The case the court ruled in has to do with a law passed by South Dakota in 2016. South Dakota's governor has said his state loses out on an estimated $50 million a year in sales tax that doesn't get collected by out-of-state sellers.
Lawmakers in the state, which has no income tax, passed a law designed to directly challenge the Supreme Court's 1992 decision. The law required out-of-state sellers who do more than $100,000 of business in the state or more than 200 transactions annually with state residents to collect sales tax and turn it over to the state.
South Dakota wanted out-of-state retailers to begin collecting the tax and sued several of them: Overstock.com, electronics retailer Newegg and home goods company Wayfair. The state conceded in court, however, that it could only win by persuading the Supreme Court to do away with its physical presence rule.
The Trump administration had urged the justices to side with South Dakota in the case South Dakota v. Wayfair.