Supreme Courts Rules States Get A Sales Tax Windfall

TECHNOLOGY

What the High Court Online Sales Tax Ruling Means for Retailers

By Matthew Townsend    

‎June‎ ‎21‎, ‎2018‎ ‎7‎:‎25‎ ‎AM Updated on ‎June‎ ‎21‎, ‎2018‎ ‎7‎:‎39‎ ‎AM

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States can require online tax collection, Supreme Court rules            

Decision reverses a 1992 decision that chains have decried

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Chalk up another victory for brick-and-mortar retailers.

The industry is on a winning streak after the U.S. Supreme Court ruled that states can collect sales tax on internet purchases, overturning a 1992 decision that traditional retailers said put them at a disadvantage with online competitors. This follows last year’s string of successes, when retailers helped to kill a levy on imported goods and saw their federal taxes slashed with a national overhaul.

Good news is a welcome change for a sector that’s endured a brutal few years with surging bankruptcies, store closings and the liquidation of big-name chains like Sports Authority Inc. and Toys “R” Us Inc.

State sales tax levels

Now, the retail survivors have one less excuse to blame for their woes.

“They have, in some ways, been hiding behind excuses like a tax differential,” said Edward Yruma, an analyst for KeyBanc Capital Markets. Their complaints have resonated less in recent years as shoppers’ migration online has been more rooted in convenience than price, he said.

“What’s driving the success of online players is this is how the consumer wants to shop today,” Yruma said. “It’s that simple.”
Shares of Wayfair Inc. plunged as much as 9.5 percent to $105.11 after the ruling was announced. Amazon.com Inc. dropped as much as 1.9 percent to $1,717.56.

What’s Ahead

The long-term impact of the Supreme Court’s decision remains to be seen. States were already collecting about 75 percent of the potential taxes from online purchases, according to the Government Accountability Office. The portion not being taxed could total as much as $13 billion a year, the GAO said.

Many large online sellers were already collecting sales tax in states where they have a physical presence -- a legal qualifier under the 1992 ruling in Quill Corp. v. North Dakota. Furniture-seller Wayfair, for example, collects the levy on about 80 percent of its sales -- a reflection of its expansion as it opens more warehouses distribution centers across the country.

Amazon says it does collect state taxes on its online sales. But levies on sales from its online marketplace, where third parties offer goods, are collected at the seller’s discretion. These sales account for about half of online giant’s retail revenue. A handful of states already have laws requiring marketplace participants to collect state levies.

If the new state sales tax requirement does end up hurting some of the marketplace sellers, that may actually help Amazon, according to retail analysts at Loop Capital Markets. The company could benefit by selling more of those items directly, which would boost its revenue because Amazon would receive the full price of the transaction instead of just a commission, the research firm said in a note.

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