Supreme Court Sales Tax

FILE - This April 23, 2018, file photo shows the Supreme Court in Washington. The Supreme Court says states can force online shoppers to pay sales tax. The 5-4 ruling Thursday is a win for states, who said they were losing out on billions of dollars annually under two decades-old Supreme Court decisions that impacted online sales tax collection. The high court ruled Thursday to overturn those decisions. (AP Photo/Jessica Gresko, File)

Louisiana is one of the states that can begin collecting taxes on retail sales over the internet after a Thursday ruling by the U.S. Supreme Court.

The ruling means that consumers who have bought tax-free items online will, once fully implemented, have to pay sales taxes on those purchases.

But it won’t happen until the fall, at least, Louisiana Revenue Secretary Kimberly Robinson told The Advocate in an interview Thursday. State officials are meeting next week with a commission charged to work out the administrative details of collecting sales taxes for both the state and the local governments where the consumer made a purchase from a remote dealer.

Robinson also said she’s worried about the possibility of a legal challenge once the state starts enforcing collections because Louisiana’s sales tax setup doesn’t meet all the criteria specifically listed on the last page of the Supreme Court’s majority opinion.

“We’re going to move forward and we’ll look at what other states are doing in light of this decision,” Robinson said.

Nevertheless, the high court ruling slowed progress in the Legislature’s special session – called to raise revenues by renewing a portion of sales tax that expires next week – as some lawmakers high-fived each other and predicted an immediate windfall that would solve all the state's budget problems.

Robinson said the numbers bandied about – up to $800 million – are overly bullish. The state is unsure just how much would be collected from internet sales because proper studies and analysis have yet to be completed, she said. Even the federal Government Accounting Office’s most optimistic estimate is less than $300 million for Louisiana when both local and state collections are counted.

On a 5-4 vote in South Dakota vs Wayfair, the high court overruled a 1992 decision that forbids states from requiring businesses to collect taxes on internet sales. Retailers with stores in the state, which do have to collect sales taxes, have long argued that the 1992 ruling put them at a competitive disadvantage with companies like Overstock.com or Blue Nile, which sells jewelry or L.L. Bean, which sells clothing. 

Supreme Court Justice Anthony M. Kennedy agreed with South Dakota in the majority opinion, finding that the long-established "physical presence requirement" – barring states from forcing out-of-state companies to collect sales taxes – "is unfair and unjust to those competitors, both local and out of State, who must remit the tax; to the consumers who pay the tax; and to the states that seek fair enforcement of the sales tax, a tax many states for many years have considered an indispensable source for raising revenue.”

The majority opinion essentially upends a 1992 high court ruling in Quill vs. North Dakota that specifically found a "physical presence requirement" was part of the U.S. Constitution's Commerce Clause and applied to sales made over the internet but delivered in a state.

Kennedy was joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel A. Alito Jr. and Neil M. Gorsuch.

On page 23 of the majority opinion, Kennedy wrote that South Dakota’s tax system includes five features designed to "prevent undue burdens on interstate commerce," including simple, standardized definitions adopted by the national Streamlined Sales and Use Tax Agreement. Twenty states have embraced those guidelines. Louisiana has not.

"Louisiana is not in compliance with many of these tenets set forward by the Supreme Court,” said Scott Drenkard, director of state projects for the Tax Foundation, an 81-year-old think tank formed by corporate titans and based in Washington, D.C.

"In fact, the state is further out of compliance than any other state,” Drenkard said. "I would bet if Louisiana started trying to collect Louisiana would be sued first.”

The possibility that Louisiana would make a tempting target for litigation worries Revenue Secretary Robinson. “There are provisions listed on page 23 concerning the Commerce Clause doctrine that we don’t follow,” Robinson said.

The court decision was returned to South Dakota courts to sort out other issues.

Chief Justice John Roberts wrote the high court's dissenting opinion and was joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan.

"E-commerce has grown into a significant and vibrant part of our national economy against the backdrop of established rules, including the physical-presence rule. Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress," Roberts wrote.

"The Supreme Court applied bacon grease to the slippery slope of states taxing and regulating outside their borders," said Andrew Moylan, executive vice president of the National Taxpayers Union Foundation and head of its Interstate Commerce Initiative, told NBC News.

"By validating South Dakota's law, the Court has granted states the power to tax any business anywhere in the country simply for daring to use the Internet to access a nationwide market," he added. "Congress must now act to contain the fallout of this case."

The National Retail Federation trade group, on the other hand, called the court's decision a "major victory."

South Dakota’s side was supported by 40 states, including Louisiana, the National Retail Federation and the National Governor’s Association.

Wayfair countered that overturning Quill would change 231 years of law and dampen a $1 trillion industry. Plus, retailers would have to contend with all sorts of different taxing systems, reporting requirements and tax rates. The conservative American Legislative Exchange Council, anti-tax advocate Grover Norquist’s Americans for Tax Reform, and online retailers, like eBay, supported Wayfair.

Large retailers including Apple, Best Buy, Target and Walmart, which have brick-and-mortar stores, already collect sales tax from their customers who buy online. That's because they typically have a physical store in whatever state the purchase is being shipped to. Amazon voluntarily collects taxes but websites like eBay and Etsy, which provide platforms for smaller sellers, don't.

The case was argued April 17 before the Supreme Court and since that day a number of the legislative assemblies in the 45 states that collect sales tax have rushed to adopt a law similar to the one passed in South Dakota that required out-of-state sellers to collect and remit sales tax “as if the seller had a physical presence in the State.” That state's law – and now Louisiana's – covers only sellers that, on an annual basis, deliver more than $100,000 of goods or services or engages in 200 or more separate transactions in the state.

The federal Government Accountability Office calculated in 2017 that the states lost about $13.7 billion in taxes from online sales. But Louisiana has no firm projections of how much could be collected from the internet tax.

On June 4, the last day of the special second session, Louisiana legislators rushed through a bill that used the same wording as a South Dakota law that was the subject to the constitutional challenge in the high court.

The bill, which was signed into law by Gov. John Bel Edwards, positions Louisiana to take advantage of the ruling and start requiring internet retailers to collect sales taxes. The new law went into effect on June 12. 

Louisiana law requires shoppers to pay state sales taxes for online purchases, but many out-of-state retailers don't charge them. Taxpayers are supposed to report online purchases for which state sales tax wasn't charged on their income tax returns — and to pay a use tax on them. Few do.

In January, letters were sent to remind taxpayers of purchases delivered to Louisiana along with a calculation of taxes that might be owed. The information came from reports that the online retailers are supposed to file with state government.

The Associated Press contributed to this report.

Follow Mark Ballard on Twitter, @MarkBallardCnb.