North Dakota-established that states could only collect sales tax from a retailer with an established physical presence within their boundaries. However, GAO also estimated that untaxed online sales would make up just 2 to 4 percent of state and local sales tax revenue.
Still, the change in precedent could put a burden on small- and medium-size online retailers who will have to navigate up to 16,000 different taxing units, according to Wayfair, which wants the current rule should stay in place.
Online shoppers could pay more upon checkout if the U.S. Supreme Court overturns a 26-year-old rule on sales taxes.
Many smaller retailers don't; unless they have a physical presence in the state where the buyer lives.
A high-stakes showdown at the U.S. Supreme Court on Tuesday will determine whether states can force out-of-state online retailers to collect sales taxes in a fight between South Dakota and e-commerce businesses.
South Dakota depends more than most states on sales taxes because it is one of nine that do not have a state income tax.
Additionally, independent businesses on websites like Etsy and Ebay would be included in a rewritten sales tax law, as well as third party merchants that operate in Amazon's global marketplace, which totaled almost two-thirds of the company's gross merchandise volume at $313.4 billion.
"Win or lose at the Supreme Court, we will continue to advocate for a legislative solution and a level playing field where all retailers collect and remit sales tax on the same basis", Way fair spokeswoman Jane Carpenter said in a statement. "The entire nature of interstate commerce has changed", says Stephanie Martz, general counsel of the National Retail Federation, which has members such as Walmart Inc., Target Corp., and Amazon.
The Supreme Court is expected to issue a decision in June.
Online retailers said reversing the 1992 precedent is a negative move in terms of e-commerce. Amazon collects sales tax on its own products, but not on other businesses' products that are sold through its website.
"Those smaller retailers are now starting to see an ability to compete with the big guys like Amazon and Walmart", said Sam Cinquegrani, CEO of ObjectWave, a digital strategy and services firm.