Online shoppers in North Carolina could soon have to pay sales tax on most of their purchases, under a ruling from the U.S. Supreme Court on Thursday.
Big internet companies have been able to avoid collecting sales taxes on purchases unless they have a substantial presence in the state where the sales take place, thanks to a Supreme Court ruling in 1992. That has given them an advantage over brick-and-mortar stores, which do pay the tax.
As a result, North Carolina has been losing more than $400 million a year in taxes, according to the N.C. Retail Merchants Association, which heralded the ruling.
"Main Street retailers that employ your neighbors, pay property tax and support the little league team and high school band have long been required to collect sales tax that online stores did not, putting them at an automatic disadvantage," association President Andy Ellen said in a statement. "The U.S. Supreme court's decision will allow all retailers to operate on a level playing field."
"It made little sense for a company with a few things in the warehouse to compete with an internet behemoth," Ellen said in an interview.
States have been waiting for Congress or the Supreme Court to resolve the dispute, which has mirrored the growth of online shopping.
Last year, state Sen. Tommy Tucker, a Republican from Union County, put together legislation that would establish a process for imposing and collecting tax on internet sales once the court or federal lawmakers made a decision.
The legislation, Senate Bill 81, cleared the Senate but stalled in the House. Tucker said Thursday the bill is ready to be taken up in next year's long session, which begins in January.
"This offers the opportunity for the state to be able to have, once again, a tax policy that is sound for everybody," Tucker said.
It wasn't clear on Thursday whether Congress or individual states will be required to take the next step.
The issue has been looming over North Carolina state government for years. In 2014, Amazon said it would pay sales tax in this state before it set up distribution centers here.
Tucker's bill establishes a threshold for when online retailers have to collect and remit sales taxes. Any seller with annual gross sales of more than $100,000 in North Carolina or with 200 or more separate sales in this state annually would be required to collect sales tax.
Sales taxes are required to be paid by consumers, but merchants find it's easier for them to collect the tax and remit it to the state. If merchants don't collect it, then it's up to the consumer to declare the purchase on income tax forms, which has been inconsistent.
The legal issue goes back to 1967, when the Supreme Court ruled that a state couldn't require an out-of-state retailer to collect a use tax unless the retailer had enough contacts with the state. Beginning in the 1980s, states tried a number of tactics to recover the revenue they were losing, according to a N.C. General Assembly staff analysis.
In 1998, North Carolina took the lead in organizing states to sign on to interstate agreements establishing uniform taxes on internet sales.
North Dakota had tried to require a corporation that didn't have a physical presence in the state to collect and pay taxes on sales shipped into the state, and the company sued. The Supreme Court ruled against the state in 1992, upholding the requirement to have a physical presence. But the court noted the issue could be resolved by Congress passing a law.
South Dakota, the subject of Thursday's Supreme Court ruling, passed a law requiring sellers to collect a 4.5 percent sales tax if they had more than $100,000 in annual sales or more than 200 transactions.
In 2013, federal legislation that would have required sales tax on all purchases passed the Senate, with North Carolina senators Richard Burr and Kay Hagan supporting, but it never made it out of the House.
Thursday's ruling fills that void by overturning the 1992 ruling in a 5-4 decision that went against Wayfair, Overstock.com and Newegg.