Editor's Note: (Jeff Yang is a frequent contributor to CNN Opinion, a featured writer for Quartz and other publications and the co-host of the podcast "They Call Us Bruce." He co-wrote Jackie Chan's best-selling autobiography, "I Am Jackie Chan," and is the editor of three graphic novels: "Secret Identities," "Shattered" and the forthcoming "New Frontiers." The opinions expressed here are his own.)
(CNN) In a decision with potentially enormous consequences, the US Supreme Court ruled Thursday that states have the right to charge sales tax on online transactions by out-of-state companies with no physical presence in their territory.
For those who buy do all their online buying on Amazon -- which, after its acquisition of Whole Foods, has a "physical presence" in pretty much every state, and which already collects sales tax in all 45 states that have such a tax -- this may have a limited impact. But for everyone else, this means paying more out of pocket.
And if you are one of the millions of Americans who sell goods via platforms like eBay and Etsy, it means having to collect and remit sales taxes in a mind-bending array of seller-buyer combinations. As the ruling points out, there are well over 10,000 state, city and local sales-tax jurisdictions in the country, and the responsibility for figuring out how much tax to collect and where to send it ultimately will rest on sellers.
That could put a significant chill on the peer-to-peer e-commerce economy, although the plaintiff in the case, South Dakota, exempts sellers who earn less than $100,000 or conduct fewer than 200 transactions a year. But each state will likely have its own unique set of exemptions, and it's hard to imagine even dedicated crafters and mom and pop e-tailers grinding their way through that menacing regulatory jungle to stay on the right side of the law.
The states argue that they're losing big bucks due to the unique tax break provided to online vendors -- as much as $33 billion a year, according to their estimates. And bricks-and-mortar stores, who are subject to taxes every time they ring up a charge on the register, have also lobbied for a level tax playing field.
But the original argument for exempting out of state online vendors from taxation, as decided by the Supreme Court 26 years ago in the case of Quill Corp v. North Dakota, was something known as the "Dormant Commerce Clause" -- which holds that without a federal law holding otherwise, state laws that encourage in-state transactions over cross-state ones should be struck down, because they inhibit free and open interstate commerce.
That's even truer today, as the number of tax jurisdictions and unique local regulations have continued to multiply. And while the plaintiffs in this case have argued that sophisticated software can manage the tracking and remittance of taxes on behalf of small vendors, that software is likely to be easily accessible only to the major online platforms -- that is to say, the likes of Amazon (which has already begun gearing up to provide "taxation as a service" to its Marketplace sellers) and eBay, companies valued at $150 billion and $67 billion.
But individual vendors who'd prefer to not be dependent on the whims and tyrannies of bigger enterprises are out of luck.
The court's concurring and dissenting lineups reflect the weird tensions and conflicting priorities inherent in the case: The majority included Justices Anthony Kennedy and Ruth Bader Ginsburg — consistently the most progressive member of the court — alongside hard-conservative Justices Samuel Alito, Clarence Thomas and Neil Gorsuch. Meanwhile, Chief Justice John Roberts dissented, in tandem with liberal jurists Stephen Breyer, Sonia Sotomayor and Elena Kagan. According to the always essential SCOTUSblog, this is a lineup that hasn't yet been seen in the history of this court.
I'm as divided in my own opinion as the court was. On the one hand, it's unquestionably unfair to privilege out-of-state vendors over those in your region or community. Small bricks and mortar businesses are embattled enough in the age of e-commerce. On the other, the ruling raises an endless series of complicated questions. Sales tax isn't just charged on physical products, after all, but also on digital goods, services and labor.
In 2015, I spent several months in California, while continuing to write for New York-based editors, like the ones here at CNN. The following year, I moved to L.A. -- for good, it seems -- but I never thought that my brief stay the prior year might expose me to business taxes in the state, since I hadn't changed my residency then and I wasn't earning money from writing for California-based platforms.
I recently received a surprising and unpleasant notice that simply having a mailing address in California for a few months might have been enough to qualify my one-many professional services company as a "California company" for 2015 state tax purposes.
While my issue was business income taxes and not sales taxes, and the issue has since been resolved, the confusion underscored the immense difficulty of determining "presence" in a digital economy.
And if I move to yet another state, sales tax issues might yet be in my future, given this new ruling.
In Hawaii, New Mexico and South Dakota, anyone who provides a professional service -- including lawyers, consultants and, yes, freelance writers -- is required to charge sales tax. Meanwhile, California charges taxes only on services that are intrinsically connected to a concrete product, like installation of a water heater. In Utah, service agreements for things like computer hardware and software are taxable. In Florida, general cleaning services are taxable for nonresidential buildings, but not for residential ones. (But oddly, carpet cleaning services are not taxable for either kind of building.) The potential for tax chaos is huge.
As business grows increasingly mobile, and more blurry in origin and fluidly interconnected, physical location is a less and less feasible way to track where and how transactions are made. If I sell something in New York, but I use a website whose server is in Oregon, receive payment in cryptocurrency (on a blockchain located, essentially, everywhere), and have the actual product shipped from China to a buyer in Iowa, what states deserve a piece of the sales tax pie?
What about emerging digital platforms like Twitch -- which allows gamers to stream their play and get tipped in real cash by viewers from across the nation and all over the world? Are they "selling a service" or "receiving gifts"? Should they pay sales taxes as well?
The ripple effects of this decision will be larger and impossible to calculate, and in tandem with the increasingly uncertain fate of net neutrality, are likely to transform the Internet as we know it. Buckle your seatbelts: It's going to be a bumpy ride.