Last week, the Supreme Court of the United States issued a ruling could change the way consumers shop online as well as the e-commerce landscape as a whole.
In a 5-4 decision, SCOTUS ruled in favor of South Dakota in the case of South Dakota vs. Wayfair, which means that states can now require businesses to collect a sales tax for purchases made online. Presently, 45 states have a state sales tax. Until now, however, online consumers have largely been able to avoid it based on who they shopped with over the Internet. This post will take a closer look at the recent decision, what it means for you, and who wins and loses because of it.
What the Decision Means
As mentioned above, online retailers can now be required by states to collect a sales tax. This is the case even if the online retailer doesn’t have a physical presence in a particular state. SCOTUS’ recent ruling overturns a previous 1992 decision that concluded that states could not make retailers collect state-level sales tax unless they had a presence in the specific state where the buyer lives.
Who Wins?
Here are the big winners from the ruling:
- Amazon: Though Amazon is a large online retailer, the e-commerce company has already been collecting a sales tax since 2017, so it’s unaffected by this recent SCOTUS ruling and can go about doing business as usual.
- 45 U.S. states: According to The Washington Post, it’s estimated that each state that collects a state tax is out between $8 billion and $33 billion each year in uncollected tax revenue. Being able to now collect it will mean more money coming in that can thereby be invested back into the state.
- Brick-and-mortar stores: We’d have to think that brick-and-mortar stores that have seen a chunk of their business lost to online retailers are popping the champagne right about now. Yes, there’s still the convenience of ordering online and having products shipped to your home, but the aspect of product price is much more comparable now between physical stores and online ones.
- Accountants: The final winner is the accounting profession, as complying with such regulations is likely to require a high level of expertise and book keeping.
Who Loses?
Here’s a look at the parties that are likely concerned following this ruling:
- Online retailers: Online retailers not presently collecting sales tax are the big losers here. Whether they’re big or small online companies, they’ll now have to justify why checkout prices have increased and why they’re still a relevant player in their own respective markets. Higher prices could risk the competitive advantage they previously held of low cost and convenience. Additionally, online retailers not currently collecting these taxes will also have to invest in the accounting software and manpower to navigate the new e-commerce rules and regulations once they’re put into effect. The thinking is that this could still be months away, but it’s certainly something online businesses will need to be aware of.
- Individual merchants: eBay and Etsy particularly come to mind, as such sites are mostly comprised of a variety of solo sellers. Having to now collect income taxes could greatly put merchants at these sites – and elsewhere – at a disadvantage.
- Consumers: The Washington Post reports that consumers could pay an additional combined $15.2 billion each year because of this new tax ruling. What’s more is that consumers have budgets to meet too. Perhaps shopping at one Internet retailer for a particular product allowed them to make ends meet because of a price discount they could get versus if they shopped elsewhere. Those days could be over, forcing consumers to find other ways to save or deal with higher online costs.
It’s important to note that each state is responsible for what it does following the SCOTUS ruling. So, for instance, smaller online retailers that don’t report large annual revenue amounts may be exempt from collecting sales tax or may only be required to collect a much lesser amount compared to larger retailers. That aspect of things remains to be seen, and could ease the worries of many small retailers without the infrastructure or means necessary to support a sales tax system.
Regards,
Ethan Warrick
Editor
Wealth Authority
