The Supreme Court just voted to close a loophole that has seen American consumers dodge billions in sales tax on online orders since 1992. The justices voted 5-4 to overturn a 1992 ruling that said a company needed a “physical presence” in a state in order to be forced to collect sales tax at the time of purchase.
Although consumers have in theory always been liable for paying sales tax to their state and municipality for online orders, the reality is very different. States were missing out on around 25 percent of the tax from online sales, according to the Government Accountability Office, meaning $13 billion in missed sales.
Today’s ruling upheld a statute from South Dakota, which requires any company with more than $100,000 in annual sales to collect sales tax on sales made to customers in the state. In upholding the ruling the Supreme Court overturned a 1992 ruling that required a “physical presence” in a state in order to mandate collection of sales tax. However, nothing will actually change until states (or the federal government) enact new regulations to force the collection of sales tax.
Nonetheless, the ruling is a big win for brick-and-mortar retailers, who have railed for years against the unfair advantage given to internet retailers by avoiding sales tax. The ruling should result in a level playing field for physical retailers: Sales tax can be as high as 12% in some areas, and online businesses — for example, tech and photography retailer B&H — have advertised heavily on the fact that they don’t charge sales tax on a majority of online orders.
Stocks of online retailers were down significantly immediately following the ruling. Wayfair, Amazon.com, Overstock, Etsy, Shopify, and Blue Apron were all down in the 30 minutes following the ruling, with Wayfair falling as much as 9.5 percent. Amazon was down nearly two percent, although Amazon may be one of the least-affected retailers. Thanks to Amazon’s nationwide network of warehouses, the company already collects sales tax for the majority of states.
The biggest impact on Amazon will actually be on the third-party Amazon Marketplace, which makes up around half of Amazon’s sales. Marketplace sellers weren’t previously required to automatically collect sales tax on their sales, and the ruling may hurt their sales. That likely won’t hurt Amazon too much, however, as an increase in prices for its Marketplace sellers will undoubtedly boost direct Amazon sales a little.
