Supreme Court will decide billion-dollar question for online sales: Can states collect sales taxes on all purchases?

The Supreme Court announced Friday that it will consider allowing states to require all online sellers to collect sales taxes, revoking an old rule that costs states billions in lost revenues.

The justices said they would hear an appeal from South Dakota and 35 other states that says the current “physical presence” rule is outdated and unfair in an era when Americans do much of their shopping online.

In 1992, when home shopping was dominated by mail-order catalogs, the high court ruled a state may require out-of-state companies to collect sales taxes only if the company had outlets or warehouses within the state. The justices said then that requiring companies to do more would amount to discrimination against interstate commerce.

But the explosion of internet sales has put pressure on Congress and the court to reconsider the issue. Traditional retailers joined the fray, arguing it is unfair to require them, but not their online competitors, to charge sales tax with each purchase.

Anthony M. Kennedy said the court should “reexamine” the 1992 decision in Quill Corp. vs. North Dakota. That decision was “questionable even when decided,” and is “now inflicting extreme harm and unfairness on the states,” Kennedy wrote in a concurring opinion.

Justice Neil Gorsuch also voiced skepticism about the 1992 decision when he was an appeals court judge, describing it as having created “a sort of judicially sponsored tax shelter.”

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