[W]ASHINGTON — A decision handed down by the United States Supreme Court Thursday clears the way for Vermont to collect taxes on internet sales from companies that do not have a physical presence in state.
In a 5-4 ruling, the high court overturned a decades-old case that had barred states from requiring companies without a brick-and-mortar presence to charge sales tax.
The Vermont Tax Department estimates the ruling could result in the state netting between $3 million and $10 million next fiscal year. In subsequent years, the state could bring in between $5 million and $15 million from online sales tax revenue.
The influx of revenue unlocked by the court decision may have an impact on the political landscape in Montpelier as Democratic lawmakers and Republican Gov. Phil Scott are locked in a stalemate over the state budget and education finance.
It remained unclear whether the revenue could be built into any of the proposals coming before the House during debate over the latest version of the budget on Friday. However, because of tax changes in this year’s big bill, the decision could help fill a gap created by the use of one-time money to pay down taxes this year.
“I think the sales tax news is really significant,” said Rep. Cynthia Browning, D-Arlington, a member of the House Ways and Means Committee. “Extra sales tax makes the hole smaller next year.”
The Supreme Court ruled in favor of South Dakota in a case against online retailers Wayfair, Overstock.com and Newegg, who did not comply with a sales tax law the state passed. The ruling overturned a previous decision.
Justice Anthony Kennedy, writing for the majority, wrote that the precedent-setting decision in the 1992 case Quill Corporation v. North Dakota puts businesses that have a physical presence within state boundaries “at a competitive disadvantage.” Businesses out of state can offer “de facto” lower prices simply because customers don’t have to pay sales tax.
“In effect, Quill has come to serve as a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a State’s consumers — something that has become easier and more prevalent as technology has advanced,” he wrote.
Justices Ruth Bader Ginsburg, Clarence Thomas, Neil Gorsuch and Samuel Alito concurred. Justices John Roberts, Stephen Breyer, Sonia Sotomayor and Elena Kagan dissented. The dissent, penned by Roberts, found that the case did not have sufficient reasons to overrule past precedent, and decisions around online commerce should be left to Congress.
The decision paves the way for Vermont to require out-of-state online retailers to begin collecting sales tax on transactions in Vermont in less than a fortnight.
A law passed in 2016 included a provision that would trigger the requirement on retailers to take effect at the beginning of the next quarter after a court decision determined the mandate was legal.
Vermont has already made efforts to collect sales tax on online sales. Last year, the state sent letters to 18,000 Vermonters asking them to pay taxes on goods they bought online.
Vermont Tax Commissioner Kaj Samsom said the state will be ready for retailers to collect the state’s 6 percent tax beginning July 1. In areas where there is a local 1 percent option tax, retailers will be required to collect that as well.
Any business that within a year does either at least 200 transactions or more than $100,000 of sales in Vermont will be required to collect the tax.
Samsom said the Tax Department will be working with legislative fiscal analysts and economists for more firm estimates of what the decision is likely to mean for state coffers.
“It’s a small part of the total sales and use tax revenue, but it’s significant,” he said.
Samsom said there is a “coincidental merging” of the court’s ruling and the stalemate in Montpelier.
As lawmakers have passed multiple bills to address state and education finance in the state, one of the changes that has been less controversial is a provision that would dedicate all of the sales and use tax the state collects to the education fund.
The new revenue the state collects as a result of the decision will be ongoing, year after year, not one-time money, he said.
Sen. Ann Cummings, D-Washington, chair of the Senate Finance Committee, mentioned during discussion of the bill Thursday that the online sales tax could help alleviate some of the education spending stress that has become a recurring problem in Montpelier.
Many locally owned businesses in Vermont have hoped for a change in the law.
Robert Kasow, co-owner of Bear Pond Books in Montpelier, said Thursday they felt the lack of a sales tax requirement on out-of-state retailers put them at an “unfair advantage.”
“We don’t mind competing but we do mind competing when the playing field isn’t level,” Kasow said.
The lack of a sales tax requirement on online sales has also led to the state losing revenue as more consumers have turned to internet retailers, he said.
“It’s a reclaiming of millions of dollars of tax revenue that’s just been basically disappeared from the ecosystem,” he said.
Kasow’s wife, co-owner of the bookstore, had been involved with efforts advocating a change in Vermont law. He said he was not sure that the court ruling would have a major direct impact on the shop, but he welcomed the outcome.
“I don’t know that it’ll change my business so much, but I think it will be enormously helpful for local government to recapture that tax revenue,” he said.
