The 5-4 decision overturned an earlier court ruling that states have fought for years. | Chip Somodevilla/Getty Images Supreme Court hands states a victory in tax case that may cost consumers The decision means states are free to collect billions of dollars in extra revenue from online retailers.

The Supreme Court on Thursday ruled that states can force out-of-state retailers to collect sales tax on purchases by their residents, sweeping away decades of precedent.

The decision means states are free to collect billions of dollars in extra revenue from online retailers, at a time when many state officials complain it's difficult to balance their budgets, and that many consumers may pay more for online purchases.


Justice Anthony Kennedy, one of the driving forces behind getting the case to the court, wrote in his opinion that the previous precedent — that states could only mandate sales tax collection from companies with a physical presence in their borders — was "unsound and incorrect."

The court's 5-4 split on South Dakota v. Wayfair didn't break along traditional ideological lines. Kennedy was joined by fellow conservative-leaning Justices Samuel Alito, Neil Gorsuch and Clarence Thomas, along with usually liberal Justice Ruth Bader Ginsburg.

Chief Justice John Roberts, normally a conservative, was joined in a dissent by liberal-leaning Justices Stephen Breyer, Elena Kagan and Sonia Sotomayor that asserted Congress should take the lead on the online sales tax issue.

In his opinion, Kennedy said the rise of the internet had made the error of the court's previous decisions "all the more egregious and harmful." At the time of those rulings, the Supreme Court "did not have before it the present realities of the interstate marketplace, where the Internet's prevalence and power have changed the dynamics of the national economy."

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The high court's ruling also is a boon to President Donald Trump, who has long railed against the ability of internet-based sellers to undercut retail stores. Much of Trump's ire on the subject has been aimed at Amazon and its founder Jeff Bezos, who also owns The Washington Post.

"Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!" Trump tweeted in March.

Amazon for years took advantage of its ability to dodge collecting state and local sales taxes, but more recently has joined big-box stores and their advocates in pushing for legislation to give states more sales tax power. The company now collects in every state with a statewide sales tax, as it has built numerous distribution centers close to urban hubs.

But some sales carried out on the Amazon platform for other dealers still escape sales tax.

The Supreme Court had most recently upheld its precedent in 1992's Quill decision, while inviting Congress to give states more latitude on sales tax if it wished.

Two justices, Kennedy and Thomas, effectively flip-flopped Thursday from the stances they took in the Quill case 26 years ago. Thomas penned a concurring opinion saying he “should have joined” the dissent in Quill in 1992. “It is never too late to ‘surrende[r] former views to a better considered position,’” Thomas wrote.

In his dissent, Roberts also agreed that a 51-year-old Supreme Court ruling exempting out-of-state mail-order purchases was “wrongly decided,” but said it should be up to Congress and not the courts to make such a potentially far-reaching decision.

“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 Court should not act on this important question of current economic policy, solely to expiate a mistake it made over 50 years ago. … By suddenly changing the ground rules, the court may have waylaid Congress’s consideration of the issue.”

But lawmakers have been mired in gridlock for years over that issue, with Republicans particularly divided. Some GOP lawmakers backing the states' position believe that giving states more sales tax power merely allows them to collect taxes that are generally owed anyway and gives them more freedom with their own budgets.

Others see it as a de facto tax increase that would give states too much power to regulate commerce beyond their own borders. The Senate did pass online sales tax legislation in 2013, but the measure was never picked up in the House, where Judiciary Chairman Bob Goodlatte (R-Va.) — whose panel has jurisdiction on the issue — opposes allowing states to collect outside their borders.

Because of that gridlock, major retail industry groups and state governments once more looked to the courts for assistance.

Kennedy first signaled that Quill might get another hearing at the Supreme Court, when he wrote in a related 2015 opinion that the precedent might have outlived its usefulness.

South Dakota, whose tax system is heavily reliant on sales taxes, then quickly passed a law that required out-of-state companies to collect taxes if they hit certain sales thresholds in the state. Wayfair, Newegg and Overstock, three companies that would have been affected by that law, were defendants in the case.

The court’s action Thursday paves the way for states to start seeking methods to collect more sales tax, but it may be far from the last word from Washington on the matter.

Both supporters and critics of the court’s decision called on Congress to follow up on the ruling with legislation that offers clear rules for how states can use their new taxing power.

“Remote retailers — many of whom are small businesses — may soon be forced to keep track of the thousands of taxing jurisdictions across the country, many with their own rates, bases, rules and regulations. Congress remains the only solution to this threat,” said Joel Griffith of the conservative-leaning American Legislative Exchange Council, who maintained that the ruling “marks a departure from a constitutional understanding of federalism.”

Along those lines, critics of the decision also said they were worried that states would move aggressively to start taxing businesses that reside outside their borders. But Kennedy’s decision also praised the South Dakota law — which, for instance, does not allow the state to retroactively collect sales taxes — for offering a “reasonable degree of protection” to companies, and some retail advocates suggested that states would take a moderate approach with their new powers.

“Most will work quickly and judiciously to reclaim their authority and create a level playing field for all retailers selling to customers in their states,” said Deborah White of the Retail Industry Leaders Association, which applauded Thursday's ruling.

Toby Eckert contributed to this report.

