On Thursday, June 21, the Supreme Court of the United States (SCOTUS) in a 5-4 decision overruled Quill Corporation v. North Dakota, finding that states can require internet merchants to collect the taxes even if the merchant has no physical presence in the state.

Justice Anthony M. Kennedy wrote the majority opinion and was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel A. Alito Jr. and Neil M. Gorsuch.

This decision could be considered a substantial benefit to state and local governments since they collect the revenue. The decision also impacts large retailers who argued the physical presence rule was unfair. Brick and mortar retailers’ stocks have been rising across the board on the news including Target, Gap and Nordstrom Inc.

This decision could impact smaller businesses and those establishments that do business with large online retailers like Amazon.com. Although Amazon also collects sales tax in every state that charges it, third-party sellers who use the site to sell goods don’t have to. Both those who support and were disappointed in the ruling from SCOTUS urge Congress to act and pass legislation to help with implementation.

Justice Anthony Kennedy wrote that the previous decisions were flawed. “Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States. These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause,” he wrote.

Roberts said in his dissent, which three other justices joined, that e-commerce has grown into a significant and vibrant part of the national economy against the backdrop of established rules, including the physical presence rule.

The Dallas Morning News reported in May of 2017 that Texas was missing out on $1 billion a year from online shopping sales taxes; the last time Texas looked at the numbers was in 2014, “and it concluded Texas would gain $800 million in state sales taxes annually if a bill such as the Marketplace Fairness Act became law. Local governments in the state would gain $200 million.” Our guess is that these calculations on the total benefit are not yet fully realized and would be dependent on the scope of the online tax.

Texans can expect this issue to resonate throughout the 86th Legislative Session. As discussions continue on funding local government and state government, school finance and property tax reform, as well as potential impacts on smaller businesses – HillCo will continue to monitor the situation for further developments.