Many online retailers have been benefiting from the fact that there are no sales taxes on online purchases. This causes an unfair advantage to online retailers due to the customers going to the online competition instead of local businesses. The local businesses do not have the opportunity to offer products and services without sales taxes. Now the tides may be changing. The law could impose sales taxes on certain online retailers, depending on their revenue and growth.
In 1992, during the Quill Corporation v. North Dakota, it was ruled by the Constitution that states could not require businesses to collect sales tax unless they had a substantial connection to the state. This decision supported the growth of online retail since it let companies sell nationwide without posing tax codes on their sales. In June, the Supreme Court moved to close the loophole by ruling that online retailers can be required to collect sales taxes. This also pertains to states where they might not have a physical presence. Online retailers still have the luxury of having a more extensive selection and the convenience of buying from home, but local businesses are now on a more level playing field.
This is a step in the right direction, even though there are still items that need to be addressed. Depending on the size of the online retailer or the size of the purchase could require them to have a sales tax. This decision could have an adverse effect on consumers since the reversal of the law could mean paying more when shopping online. Most states have already required consumers to pay a tax that would be equivalent to the state sales tax when they make purchases online, but it was scarce.
New York Times reports, many shares in online retailers have started to fall, but the decision isn’t concerning some of them. Wayfair had already been collecting sales tax on almost 80% on their orders and does not see the decision impacting their business. It will have little impact on Amazon since they collected sales tax in the 45 states that have one. But Amazon’s income comes from independent merchants who are responsible for calculating and paying the various state taxes if they are owed. Overstock seems to be concerned, not about its company, but about the challenges it will present to internet start-ups.
Since technology is changing the face of the law, it can also help in keeping people up-to-date with the law. The Supreme Court decision could create a hurdle for smaller companies, but easy-to-use-tax-automation software is offered to help them navigate the local laws. It is doubtful that the implementation of sales tax will slow the rise of the online retailers.