In 1992, during the era of mail-order catalogs, the Supreme Court ruled it was unconstitutional for states to demand that out-of-state sellers collect and remit sales taxes on all purchases.
In response to the ruling, the stocks of several internet retailers, including Amazon, eBay and Wayfair, all dropped. The cases the court overturned said that if a business was shipping a product to a state where it didn't have a physical presence such as a warehouse or office, it didn't have to collect the state's sales tax.
The Supreme Court decided the previous tax structure in Quill Corp. v.
Yet a majority of the states say they are losing billions in revenue, and they are supported by many large, so-called brick-and-mortar retailers like Wal-Mart that do pay sales tax, regardless of whether their sales are done in stores or online.
South Dakota was backed by President Donald Trump's administration in the case.
From here on out, states can now force shoppers to pay the sales tax upfront no matter where you're buying from. That will open the door to more states passing laws similar to South Dakota's.More news: John Travolta Reportedly Believed Gotti Would Be An Awards Contender
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As an example, lawyers for the online retailers told the high court that in IL, a Snickers bar costs more in taxes than a Twix bar, since food items containing flour are not treated as candy for tax purposes. South Dakota's governor has said his state loses out on an estimated $50 million a year in sales tax that doesn't get collected by out-of-state sellers.
Internet companies opposed to the South Dakota law appealed.
Only five states do not have a state-wide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
Justice Anthony Kennedy wrote that the physical presence rule "each year. becomes further removed from economic reality and results in significant revenue losses to the states".
Amazon, which was not involved in the Supreme Court case, collects sales taxes on direct purchases on its site but does not typically collect taxes for merchandise sold on its platform by third-party venders, representing about half of total sales.