Maine stands to earn tens of million of dollars after the Supreme Court ruled Thursday that states can force online retailers to pay sales tax.

In the 5-4 ruling, the court said a decades-long rule that exempted companies from collecting sales tax unless they had a physical presence like an office, store or warehouse in the state was out-of-date in an era of fast-paced online commerce.

States lose billions of dollars every year because of the physical presence rule, wrote Justice Anthony M. Kennedy, in the court’s majority opinion. Maine officials have estimated the state loses up to $20 million a year from online sales.

“The physical presence rule has long been criticized as giving out-of-state sellers an advantage. Each year, it becomes further removed from economic reality and results in significant revenue losses to the States,” Kennedy wrote.

The case resulted from a 2016 law passed in South Dakota that required online retailers to collect sales tax if their annual sales in the state were over $100,000 or 200 separate transactions. The state sued internet merchants Wayfair, and Newegg with the intention of overturning the physical presence rule that was affirmed in a 1992 Supreme Court ruling.

Maine lawmakers passed an identical bill to South Dakota’s in 2017, forcing out-of-state retailers to pay 5.5 percent sales tax.

Curtis Picard, Retail Association of Maine’s executive director, said his organization drafted the online sales legislation anticipating a ruling in favor of South Dakota. Maine should be able to begin enforcing its law right away, Picard added.

“We think compared to other states that haven’t passed this type of legislation it will be much easier for Maine to step up on this and start collecting taxes,” he said. The association has lobbied the state for years to collect online sales tax, complaining that it disadvantages brick-and-mortar businesses.

Maine Finance Commissioner Alec Porteous said the state is reviewing the ruling to determine how it will affect the state.

“On its face, the court’s ruling seemingly validates Maine law,” but the South Dakota case is ongoing because it’s been remanded back to the courts there, Porteous said in a written statement.

“It will be important to further study the ruling, determine the extent to which South Dakota’s statute aligns with our own, and prepare any changes to Maine law that may be necessary.”

Ultimately, a federal congressional solution might be better to create a framework for the new tax regime, Porteous added. Gov. Paul LePage vetoed the online sales tax bill last year saying he worried it would cause small retailers to stop selling in Maine and could “needlessly expose the state to litigation” because it violated the physical presence rule.

Instead, LePage expressed his support for a federal Marketplace Fairness Act to compel online retailers to pay taxes nationwide.

“The LePage administration appreciates the Supreme Court’s consideration of the need for clarity in sales tax laws affecting sellers in other states,” Porteous said in his statement.

Opponents of forcing online retailers to pay state sales tax argue it will disadvantage small startup retailers and that companies are unprepared to navigate thousands of unique state and local sales taxes.

Kennedy, in his opinion, said those concerns were not enough to “justify retaining this artificial, anachronistic rule that deprives States of vast revenues.” States may be losing up to $33 billion a year in taxes because of the rule, he said.

Amazon and other large online retailers already collect sales tax in Maine and other states through private tax agreements with state governments.

Maine Revenue Services estimates new sales tax from online retailers helped add $4 million to state revenue in the first two months of 2018. Maine residents are supposed to report unpaid sales tax on state income tax filings, but only 8 percent did in 2016, according to the state.

L.L. Bean is still reviewing the court decision, but collecting sales tax is nothing new for the company, said spokeswoman Carolyn Beem. Online and mail-order sales are a critical part of the company’s business.

“Currently, we collect and remit sales tax in Maine as well as in a number other states equaling over 70 percent of our sales,” Beem said. “L.L. Bean has never been opposed to sales tax collection, and has always been a proponent of tax simplification, clarity and fairness.”

George Isaacson, a partner with the Brann and Isaacson law firm in Lewiston that represented Wayfair and other companies in the Supreme Court case, cited a dissenting opinion from Chief Justice John Roberts that the ruling “breezily disregards the costs that its decision will impose on retailers.”

Companies engaged in interstate commerce will be confronted with the prospect of collecting sales tax, but also determining if a jurisdiction’s laws and regulations satisfy the factors in the ruling, Isaacson said.

Congress has the ultimate authority to prescribe conditions for remote sales tax collection, he added.

“It can adopt legislation that properly balances the interests of states in securing tax revenue from online sales with the ability of new and emerging businesses, and smaller online sellers, to gain access to the internet superhighway to grow their businesses, free from the inordinate cost and complexity of complying with thousands of state and local tax codes.”

Peter McGuire can be reached at 791-6325 or at:

[email protected]

Twitter: @PeteL_McGuire

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