States Can Charge eCommerce Sales Tax
So, it finally happened. The South Dakota state government can now charge eCommerce sales tax for online businesses.
This morning the US Supreme Court announced the 5-4 ruling, overturning a 1992 decision (Quill Corp v. North Dakota) that barred states from collecting sales tax from businesses with “no physical presence” in their state. The high court ruled against Wayfair, Overstock.com, and Newegg, sending their stock price into a fall (along with that of Amazon, Etsy, Ebay and more). As a result of the ruling, many fear the gates have been opened for all 45 states that collect sales tax to use the Wayfair decision to charge Internet sales tax. When this happens, online shops will likely begin charging customers at the checkout, driving up eCommerce prices for customers.
However… Consumers are already required to report their online purchases and pay the applicable taxes. According to CNN, “Last year, states could have collected as much as $13.4 billion in additional online sales taxes, according to the General Accountability Office. Although buyers are technically supposed to add up their purchases and pay all the applicable taxes along with their regular filing, few do.” As a result, some argue this decision is fair, especially when one considers eCommerce’s massive impact on the U.S. economy.
In the majority opinion, Justice Anthony Kennedy wrote, “The Internet’s prevalence and power have changed the dynamics of the national economy.” He also mentioned the need for states to collect the tax as digital retail continues to explode, saying, “The expansion of eCommerce has also increased the revenue shortfall faced by States seeking to collect their sales and use taxes.” With eCommerce poised to make up 17% of US retail sales by 2022, the ruling makes sense now more than ever.
The likely winners in this scenario will be states who can now collect the online sales tax (many more to come), and Amazon, who has been paying state sales taxes for years. While the decision will hurt smaller, non-monolithic eCommerce businesses, Amazon’s competition will now likely face the same tax requirements, keeping Amazon even still again, ahead of the curve.
For now, in South Dakota, the law will only apply to eCommerce sites with more than $100,000.00 in sales revenue from commerce within the state. The state now stands to gain an additional 50 million dollars in revenue annually from the tax. Lastly, as CNBC reports, “[the] states that are likely to see the biggest percentage increase in revenue are Louisiana, Tennessee, South Dakota, Oklahoma and Alabama, according to the Barclays research.”
Want to learn more about the future of eCommerce? Check out our latest podcast here.