States to Force Online Retailers to Charge Sales Tax

States to Force Online Retailers to Charge Sales Tax
States to Force Online Retailers to Charge Sales Tax

The U.S. Supreme Court has approved a decision allowing states to force online retailers, such as Amazon and Wal-Mart, to collect sales tax on their sales. The decision changes lax enforcement around tax collection that allowed businesses to essentially under-price brick and mortar outlets by claiming they were serving customers outside of the tax collection zone for their state.

Key Facts

• The decision challenges an earlier decision made in 1992 that established guidelines stating that online retailers only had to charge sales tax for customers within their own state.

• Wayfair Inc, Overstock.com Inc and Newegg Inc have all challenged the new law, calling it damaging to the e-commerce industry. Shares from all three businesses dropped substantially after the decision was announced.

• The decision also impacts third-party auction and seller sites like Amazon, even when the company itself isn’t doing the selling. Previously, Amazon left sales tax at the seller’s discretion; now, it may be forced to collect tax from the seller or to ensure that taxes get collected at the moment of purchase.

• President Trump applauded the change, calling it a “Big victory for fairness” and a “great victory for consumers and retailers.”

• The changes are likely to affect consumers more than retailers. If you currently purchase merchandise online, you may finding yourself paying more for those items at the virtual till. Right now, direct retail outlets are most likely to increase prices, but the change could eventually affect businesses like Hulu, Netflix, and other digital delivery platforms.

• Justice Anthony Kennedy, who penned the ruling, was quick to remind people of why the change is happening, explaining that it ensures “artificial competitive advantages are not created.” Certainly, online retailers had an artificial advantage created by the lack of enforcement across the board.

• It will still be up to each state to enforce sales tax collection for retailers. Technically, states are supposed to enforce collection, but may choose to avoid forcing retailers into it when serving consumers out of state.

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