June 21 (UPI) -- The U.S. Supreme Court ruled Thursday to allow states to force online retailers to collect a sales tax, breaking with 50 years' worth of previous rulings.
In a 5-4 decision, the court ruled in favor of the state of South Dakota, which asked the court to uphold a new law imposing an Internet sales tax.
South Dakota argued that an explosion in online sales changed the market, and passed a law two years ago requiring all but the smallest retailers to collect taxes on sales they make in the state, even if they have no physical presence there.
Internet companies argued applying a sales tax would be a daunting task, as local tax laws vary widely by state.
Kennedy argued physical businesses were put at a disadvantage because they were forced to charge a sales tax while online businesses did not, noting the rule "prevented market participants from competing on an even playing field."
"Each year, the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States," Kennedy wrote.
Chief Justice John Roberts, writing in dissent with Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan, said the decision disregards the costs a sales tax would impose on online retailers -- a process that could be "baffling" for Internet sellers.
"The burden will fall disproportionately on small businesses. One vitalizing effect of the Internet has been connecting small, even 'micro' businesses to potential buyers across the Nation," he wrote.
"People starting a business selling their embroidered pillowcases or carved decoys can offer their wares throughout the country-but probably not if they have to figure out the tax due on every sale."
Roberts said the decision should be left to Congress, as they have "more flexibility" to address the issue.