The case also stemmed from a challenge from the state of North Dakota, which argued that it was losing an estimated $50 million in taxes because of the previous rules.
In giving a victory to the states, the high court said that rule is outdated.
Today's ruling upheld a statute from South Dakota, which requires any company with more than $100,000 in annual sales to collect sales tax on sales made to customers in the state. Now, rivals will be charging sales tax where they hadn't before. They had resulted in some companies not collecting sales tax on every online purchase.
"Amazon's third-party business should be minimally affected in the long term from states imposing taxes on online sales, as the impact is equal across the e-commerce ecosystem." said Jitendra Waral, an analyst at Bloomberg Intelligence.
"Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own". In the wake of the Supreme Court ruling, more states are likely to follow suit, meaning more online sales will be subject to the tax.
"This decision paves the way for a level playing field throughout the industry". This will be a huge boost to state budgets, but online retailers won't be pleased.
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With Billions At Stake, Supreme Court Rules States May Tax Online Retailers
The conservative chief justice, John Roberts dissented along with liberals Stephen Breyer, Sonia Sotomayor and Elena Kagan. But half of Amazon's sales are from third-party Marketplace sellers, who for the most part don't collect sales taxes.
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Some states will still have to pass new legislation to demand tax from out-of-state orders, and that isn't always guaranteed. That software, too, can be an added cost.
Justice John Roberts Jr. wrote the dissent.
"Ecommerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule".
Chief Justice John Roberts dissented, along with Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan, saying US lawmakers should take up the issue. The lineup of justices on each side of the case was unusual, with Roberts joining three more liberal justices and Ginsburg joining her more conservative colleagues.
"Startups and small businesses may benefit from the physical presence rule, but here South Dakota affords small merchants a reasonable degree of protection", the ruling says.
"We are a state, we're most famous for having one of the most complicated and quite frankly, screwed up sales tax systems in the United States", McCarthy said. President Donald Trump, who has bashed online retail powerhouse Amazon.com Inc and whose administration backed South Dakota, said on Twitter. Shares in large chains with more stores traded higher. He also had supported Nebraska joining with 33 other states and the District of Columbia a year ago in supporting South Dakota's case before the high court. South Dakota took him up on the suggestion.