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Court sends e-commerce a reality check

Packages on a conveyor belt at the main

Packages on a conveyor belt at the main post office in Omaha, Nebraska. Under a Supreme Court ruling, states will be able to force shoppers to pay sales taxes when they make online purchases. Credit: AP / Nati Harnik

Perhaps the internet finally has lost its new-car smell.

The Supreme Court’s ruling Thursday that will force most online retailers to collect sales tax is a sign of just how much e-commerce and digital interaction have grown in the last 15 years. The case will have far-reaching implications for consumers.

The 5-4 decision involved South Dakota’s attempt to collect taxes from Wayfair, the popular home goods site that boasted about not charging taxes. The case was a campaign to overturn a 1992 ruling that costs states and local governments billions of dollars in revenue by requiring internet retailers to collect sales tax only if they maintained a physical presence in a state. In overturning that case, Justice Anthony Kennedy, in the majority opinion, said the earlier ruling distorted the nation’s economy by putting local sellers at a competitive disadvantage. The dissenting justices said Congress had the power to change the bricks-and-mortar loophole, but didn’t. Now Congress must provide clear rules to allow internet sales to flourish but make tax-collection requirements uniform.

While some internet retailers, including Amazon, charged sales tax in New York, in part because they had a physical space here, many others did not. The local revenue boost from the decision could be significant. The Long Island Regional Planning Council recently estimated that the region loses $100 million a year in revenue Island-wide from internet sales where no sales tax is collected.

The decision also could level the playing field a bit for traditional brick-and-mortar retailers, especially on items with larger price tags, since there will no longer be a tax incentive to shop online. But the ruling also might signal a much larger message, serving as yet another sign that online businesses, no matter which industry and no matter how large, might no longer operate in their own free-for-all universe.

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