Online shoppers in the US have had it pretty good. Under an old Federal ruling, consumers in one state didn’t have to pay local sales taxes on items they bought online from a company in another state. It was a relatively small, built-in discount that gave eCommerce companies a theoretical edge over local retailers. Will the Supreme Court’s recent eCommerce ruling change all that?
Local Brick-and-Mortars See Hope in eCommerce Ruling
Brick-and-mortar shop owners are hopeful that the decision will drive customers back to their stores. Online sellers, of course, worry how the ruling will affect their sales. For retail in general, the court’s eCommerce ruling will have an uncertain impact.
Mail Order vs New Reality
The ruling overturns an exemption that originally applied to mail catalog retailers. If a retailer didn’t have a physical presence in a state, putting demand on local infrastructure, why should they pay for that in the form of a sales tax? That logic later extended to online retailers, enduring multiple court challenges. But with eCommerce dominating sales the way mail order catalogs never did, states felt the lost tax revenue deeply. Online retail sales in the US surpassed $453 billion dollars in 2017, 10% of all retail sales. And not applying sales taxes to those translates into a lost $33 billion in annual state revenue.
It’s unclear at this point how and when this ruling will impact retailers. All but five US states have a sales taxes, but each one imposes different rules under what circumstances those taxes kick in. For example, the South Dakota law at question in this case imposes its tax on companies that make more than $100,000 (or 200 transactions) a year. Larger retailers, like Amazon, already collect taxes on products sold from their inventory. Thus, the largest impact of the ruling will be felt by smaller businesses. First, brick-and-mortars in affected states who may see an uptick in sales. And secondly, smaller out-of-state eCommerce retailers that will have to begin tracking state taxes wherever they sell.
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