SPRINGFIELD — Illinois consumers can expect to pay more when shopping online after the U.S. Supreme Court ruled that states have the authority to require out-of-state online retailers to collect sales taxes.
In a 5-4 decision in South Dakota vs. Wayfair Inc., the court ruled states can require sellers to collect sales taxes even when the seller has no physical presence in the state. The court sided with the government. Concurring with the majority opinion, new Justice Neil Gorsuch wrote that the ruling is meant to “rightly end the paradox of condemning interstate discrimination in the national economy while promoting it ourselves.”
Chief Justice John Roberts dissented.
“Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress,” he wrote.
Illinois already requires consumers to self-report sales taxes for online sales. The ruling shifts that burden to sellers.
Michael Leonard, a tax professional based in Oak Park said he knows of virtually no one who self reports online purchases on tax filings. He said the ruling could put small businesses that sell online in a bind.
“Now that’s going to be implemented on the internet and paying the sales tax, now you’ve got to employ and accountant, there’s more money involved, you’ve got to pay tax, it’s gonna make them not want to do it, of course,” Leonard said.
Small businesses can’t navigate the different rules of the 10,000 taxing bodies across the country, said Jessica Melugin, associate director of the Center for Technology & Innovation at the Competitive Enterprise Institute. She said the ruling is a tax increase for consumers.
“The whole point of this whole exercise from states and localities is to get more tax money in their coffers so that’s going to come out of consumers’ pocket books,” Melugin said.
The Illinois Department of Revenue also praised the ruling, estimating it will bring in $200 million to state coffers annually.
“To be clear, this is not a new tax. Illinois residents are already obligated to pay a Use Tax on out-of-state purchases and this prudent decision will allow states the ability to enforce Use Tax laws that are already in existence,” revenue department spokesman Terry Horstman said in an email. “With this decision, we level the playing field for Illinois brick and mortar retailers.”
The high court’s ruling was cheered by brick-and-mortar retailers that have complained that online sellers had a tax advantage. The decision also was welcomed by Illinois municipalities, said Bill McCarty, Springfield’s budget director.
“This will provide a little bit of a cushion, but more importantly it provides a stepping stone we need to eventually bring those tax dollars home, which is where we need to get to,” he said.
McCarty said the ruling could mean Springfield will get an estimated $300,000 from the state, which hands out state sales taxes to municipalities on a per capita basis.
Illinois Retail Merchants Association President Rob Karr said the ruling is a win for his 20,000 members.
“This simplifies life for retailers and for consumers and it levels the playing field for retailers and their internet competitors,” Karr said.
“All eyes will now shift to Congress and the states,” the nonpartisan Tax Foundation said in an email. “One thing that will be important to remember as states look to grapple with today’s decision: This ruling is not a blank check. The Court specifically observed that South Dakota’s law, and its tax laws generally, minimizes the burden on interstate commerce. Other states should craft their laws accordingly.”