Supreme Court ends tax-free online shopping

The Supreme Court ended the era of tax-free online shopping Thursday when it ruled in favor of states demanding internet retailers pay sales tax. The 5-4 ruling reversed two decades-old Supreme Court decisions retailers had used to avoid paying the tax. Those decisions said an online business shipping products to customers in states where it did not have a physical presence didn’t have to collect sales tax. Several states challenged that policy, saying they were losing out on billions in potential revenue generated by the rapidly growing online marketplace. The justices agreed.

“Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States,” Justice Anthony Kennedy wrote in the majority opinion. “These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause.” The ruling will not affect many of the largest online shopping sites, like Amazon, which have distribution warehouses across the country and already collect sales tax.