A recent Supreme Court decision could change the future of online shopping outlets you use every day, and may significantly affect how much you pay to use them.
In the recent case of South Dakota vs. Wayfair, the state argued that it should be able to collect state sales tax from purchases made by its residents on the popular shopping site (and similar shopping websites) – even though Wayfair doesn’t hold a physical presence in the state. Unlike some other online retailers — who may have warehouses or distribution centers in-state — Wayfair was considered by the most common interpretation of interstate commerce law to be exempt from having to collect, as it didn’t do any physical business there.
South Dakota’s claim that it should get tax revenue was recognized earlier this month, as the high court ruled in its favor. In a surprising decision, the court also overturned a previous case brought by neighboring North Dakota in 1992, which had determined that catalog sales were exempt from tax collection. This new development would require even the smallest of internet retailers and mail-order suppliers to uphold state and regional sales tax laws for their customers’ purchases.
What does this mean for small business? The opinions are mixed. While the stock markets protested slightly after news of the verdict (with e-tailers, in particular, selling off and losing value), some brick and mortar stores in the state are optimistic. With the hope that they will be on equal footing with larger online retailers, they see this as an opportunity to collect taxes they feel owed. Online retailers, overall, aren’t so thrilled. They worry that the massive task of tracking and complying with 50 distinctly separate and unique state taxation laws (plus over 12,000 municipal statutes) will be burdensome, setting them up for a battle of administration woes they are destined to lose.
How does this affect you? While the jury may be done deciding this case, it’s still out on how the decision will affect day-to-day shopping experiences. States like South Dakota, who interestingly don’t charge any state income taxes, hope that the extra revenue from online purchases will help keep them competitive in a changing retail landscape. They join many other states who interpret the new revenue opportunity as a way to tax only bigger businesses. (Many states now use existing online taxation methods only for businesses with a million dollars in sales or more.) Since sites like Amazon were already collecting sales taxes for most states, the change for sites we shop the most will be negligible – for now.
The big reveal will come when states use this case as a way to collect more revenue than before, likely through new tax legislation. Will states lower their threshold to require even tiny eBay sellers and Etsy stores to collect sales tax on every purchase to their residents? Will the new requirements cause small e-tailers to collapse? For now, anything is possible. Keep an eye on your next online purchase (and your favorite e-commerce stocks) to see how the Court’s decision will affect you.