Following the U.S. Supreme Court ruling that gives states the right to collect sales tax from online retailers, some questions remain about what the decision means for both governments and e-commerce businesses.
Though the decision has been met by cheers from retail groups that see this as a win for brick-and-mortar stores that have always had to collect taxes, Garrick Brown, vice president of retail intelligence at Cushman & Wakefield, isn’t sure they’ll see the payoff they’re hoping for—primarily, he says, because the case was less relevant than it would have been a few years ago.
“This would have been a game changer 10 years ago but the game already changed. Nineteen of the top 20 internet pureplays are already collecting local sales taxes,” Brown said, adding that the value proposition for e-commerce has also changed. While there was a time when online companies used to seek out states with sales tax advantages, Brown said that hasn’t been a priority lately. “When Amazon went on the property binge outside every major metro area, they changed the model to it being not about value but about speed and convenience, and the rest of the market followed.”
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Early reads from one of the participants in the lawsuit seem to bear out the theory that consumers aren’t shopping online simply to score a deal.
Overstock.com, which had opposed South Dakota’s sales tax requirement, which said all online businesses that did more than a minimum amount of sales in the state must pay taxes, said in a statement last week it has been “mildly surprised” by the lack of negative impact since it started collecting sales taxes. President, CEO and founder Patrick Byrne said, “we have seen no measurable decrease to conversion in states in which we began collecting this past week.”
Further, now that the Supreme Court has spoken on the matter, Overstock says it is pushing into states with warehouses, fulfillment centers and other operations which had been off limits due to physical presence concerns under Quill.
The company’s experience thus far also shoots down one leading argument against overturning the 1992 decision that blocked states from collecting sales taxes from companies not physically located in their jurisdictions. Opponents had said it would be burdensome for businesses to have to calculate sales tax for the numerous state and local governments across the company. The speed with which Overstock has been able to enact the necessary changes seems to say otherwise.
“I’m pleased with the hard work of our team in quickly implementing the technology that allows for accurate collection following the regulations of the more than 12,000 independent U.S. tax jurisdictions, and I am even more optimistic that we will see a net-positive result to this shift once the digital and physical expansion opportunities we are pursuing are implemented in full,” Byrne said.
While Overstock has proactively taken steps to collect sales taxes, other sellers may choose to wait to see how states react to the decision. In some cases, the reaction might be to do nothing.
Matt Boch, partner with Little Rock, Arkansas law firm Dover Dixon Horne, said it’s possible that some states won’t rush to replicate South Dakota’s law because they already have a solution in place. In states like Washington and Rhode Island, marketplace provider laws already require sellers like Amazon and Walmart to collect taxes from third-party vendors. And continuing forward in this vein could prove beneficial, he said.
“They still want to have a solution that will get them tax revenue as easily as possible,” Boch said. “It may turn out to be more administratively convenient to go after the marketplace rather than the participants on the marketplace.”
But whether states opt to task sellers or their marketplaces with collecting taxes is likely to be an open question for at least a few more months.
“I expect to see legislative changes but we‘re so close to the November elections it probably won’t be until they come back in next year,” Boch said.
