Online Retailers’ Profits Curtailed by Supreme Court Tax Ruling

Following the Supreme Court’s 5-4 decision and announcement on Thursday June 21st regarding the South Dakota vs. Wayfair lawsuit, the stock prices of online retailers have plummeted, including those of Amazon, Overstock, Wayfair, Etsy and eBay.

The groundbreaking ruling gives states permission to collect sales taxes from online retailers that are not physically located in the state.

The Supreme Court’s 5-4 decision overturns the previous 1992 ruling that barred states from collecting sales taxes under those same circumstances. The 1992 precedent allowed states only to collect taxes from businesses which had a physical, or brick and mortar – presence in the state, leaving online retailers exempt.

The court’s decision is seen as modernizing the earlier law which was instituted before the online retailer boom had exploded. The ramification is that now consumers may end up paying more for online purchases than they did before this new 2018 ruling.

Under the earlier law, “technically speaking, sales tax not charged by a company was still owed on a tax return in the form of ‘use taxes,’ which are supposed to apply to purchases made in a variety of remote ways including online, through catalogs, and others,.” However, most consumers failed to do so letting them largely off the hook, albeit unlawfully, of paying the tax.

South Dakota’s new law will apply only to businesses making at least 200 transactions or more than $100,000 in sales each year in the state. Of the other states, 31 already collect taxes from online retailers to some degree, while 19 others still do not have legislation. This new ruling, however, may spur other states to revisit and revise existing legislation or enact new legislation in states that currently lack it.

The decision impacts online retailers such as Amazon and other large companies, but may even affect small businesses and individual sellers on sites such as Etsy or eBay. While the law is believed to affect large online retailers rather than individual or small businesses, further clarification is needed.

One e-commerce business we spoke to called SmokeSmith Gear (they are an upscale smoke shop that sells bongs, vapes and smoke accessories) said the current state of affairs was confusing. “The new law is a bit vague because it appears that it’s going to be a state by state decision. Having to collect and file taxes in all 50 states will add immense overhead and red tape to small business, that’s for sure.”

eBay has called on Congress “to provide clear tax rules with a strong small business exemption” while Etsy CEO, Josh SIlverman, is urging its sellers to sign a petition encouraging lawmakers to clarify the law and its interpretation of it so that it does not hurt individual sellers and small businesses.

Melissa Thompson
Melissa Thompson writes about a wide range of topics, revealing interesting things we didn't know before. She is a freelance USA Today producer, and a Technorati contributor.