Online Retailers Could Start Collecting Sales Taxes

June 22, 2018

In recent years, millions of consumers have grown accustomed to the convenience of online shopping. Along with enjoying wide selections and free home delivery, e-commerce customers often don’t pay sales tax for items purchased online. However, that last fact could soon change thanks to a new Supreme Court ruling.

The decision reverses a previous ruling that prevented companies from collecting sales tax in states where they had no physical presence. Given that online retailers aren’t constrained by borders, though, a majority of Supreme Court justices felt the law needed to change. With this loophole effectively closed, states can now introduce legislation to charge sales tax on e-commerce platforms. “State and local governments have really been dealing with a nightmare scenario for several years now,” said Carl Davis of the Institute on Taxation and Economic Policy. “This is going to allow state and local governments to improve their tax enforcement and to put local business on a more level playing field.”

While brick-and-mortar retailers celebrate the ruling, online sellers have largely spoken out against it. Opponents say that e-commerce businesses will now have to navigate through a mess of tax laws state by state. According to supporters of the change, though, dealing with complex tax legislation has never been easier thanks to modern software that streamlines the process. Meanwhile, some companies have been collecting sales tax for months in anticipation of the Supreme Court’s ruling. Amazon, for instance, has collected sales tax from 45 states since last year. In fact, the court’s decision will have a far greater impact on Amazon’s fleet of independent merchants, which account for half of the company’s online sales. These sellers will now be responsible for calculating and collecting sales tax depending on which states their customers live in. Even with slick new software, this task will likely be a demanding one for independent sellers on Amazon.

Questions:

  1. Do you think online retailers should be required to collect sales tax? Why or why not?
  2. How will the Supreme Court’s decision affect Amazon’s independent merchants and other small online sellers?

Source: Adam Liptak, Ben Casselman and Julie Creswell, “Supreme Court Widens Reach of Sales Taxes in E-Commerce,” The New York Times, June 21, 2018.

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