Avalara stock soars following Supreme Court e-commerce sales tax decision

Joanna Estrada
June 23, 2018

In a much-anticipated decision, the U.S. Supreme Court ruled today that Internet retailers must collect sales taxes in states where they have no physical presence. "This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both".

Online shoppers get ready. They had resulted in some companies not collecting sales tax on every online purchase.

"The Quill court did not have before it the present realities of the interstate marketplace, where the Internet's prevalence and power have changed the dynamics of the national economy", Justice Anthony Kennedy (left) wrote in the majority opinion, in which he was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch.

First, the court did not rule out the possibility that states may not collect taxes on all online purchases, given the negligible size of some transactions.

Taylor Barras needs a win.

The Illinois provision mirrors the South Dakota law at the center of the Supreme Court case, and is scheduled to go into effect on October 1.

"Today's decision promises to subject small businesses reliant on e-commerce to new and burdensome tax obligations in states across the nation", said Ed Black, president of the Computer & Communications Industry Association, in a statement Thursday. North Dakota decision, which ruled that companies need to have at least some physical connection with a state for that state can require that company to pay taxes.

"Consumers are used to paying sales tax, so no big deal", Tim Bajarin, principal analyst with Campbell-based Creative Strategies, a market researcher, said Thursday.

Until now, many sellers that have a physical presence in only a single state or a few states have been able to avoid charging sales taxes when they ship to addresses outside those states. That's where an order late in the year could immediately implement the sales tax.

"Then small business will be forced to carry the financial burden of other states' taxes".

Chief Justice John Roberts led the dissenting opinion, in which he and Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan argued that Congress, not the court, should decide the online sales tax issue.

The National Retail Federation trade group, said the court's decision was a "major victory" but the group said federal legislation is necessary to provide details on how sales tax collection will take place, rather than leaving it to each state to interpret the court's decision.

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. Lawmakers in the state, which has no income tax, passed a law created to directly challenge the physical presence rule.

Avalara representatives could not talk about how the decision impacts its business due to the post IPO "quiet period" that the company says bars officials from talking about future effects on the business. "Today's decision is welcomed by Main Street grocers, as it helps assure a more level playing field between Main Street brick-and-mortar and out-of-state e-commerce merchants", odd said. The Supreme Court heard arguments in the case in April. While the Supreme Court spoke approvingly of the law it sent it back to South Dakota's highest court to be revisited in light of the court's decision.

Last year, South Dakota orders reached about $85,000, or $15,000 shy of the new $100,000 threshold, Gendelman said.

Other reports by Click Lancashire

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