A day after the U.S. Supreme Court opened the door to state collection of sales taxes for eCommerce purchases, questions swirled about software, Congressional action, marketplace sellers and how consumers would react. Five Supreme Court justices may have settled one of the longstanding issues of online retail, but that does not mean everything has suddenly cleared up.
First, no sense of sky-is-falling doom emerged from any reliable retail or payments source. That’s likely because many important industry participants — both retailers and the support technology firms that operate the gears — have over the years come to accept that one day, one way, states would eventually get the OK to collect those taxes. Thursday’s Supreme Court 5-4 decision shouldn’t take anything away from that growing sense of inevitability.
And then there is this: eCommerce isn’t going away. It accounts for more U.S. retail sales as mobile, ad targeting, product recommendation and digital payment technology continue to advance and make it more of a hassle for customers to revert back to their old physical shopping habits.
How Will Consumers React?
That’s not to say that some consumers might be put off by the looming expansion of sales taxes to more online purchases and shift dollars to brick-and-mortar retail. Estimates of that potential trend vary, but in the hours after the ruling, Sucharita Kodali, a Forrester retail analyst widely cited within the eCommerce industry, told CNBC that 10 percent of consumers said they will indeed go back to physical sales instead of paying those online sales taxes — a decision that, if really taken, could put up to $20 billion worth of online retail revenue at risk.
That brings worry to the minds of some online retailers, especially the smaller operators already surviving on thin margins as they compete against the likes of Amazon. But one issue that deserves no major source of concern in this new reality of online sales taxes is the software that will help merchants calculate how much to owe to various jurisdictions.
According to Jerry Storch, former CEO of Toys R Us, who also spoke with CNBC, such technology is “readily available.” Speculation about hassles caused by a lack of tax-calculating software is a “nonissue,” he added. Indeed, eCommerce technology providers are likely to soon offer upgrades and options to retail clients that reflect the new taxing realities of eCommerce.
Physical retailers are obvious fans of the Supreme Court ruling, as they have long thought the rule that enables eCommerce operators to avoid sales taxes based on a lack of physical presence in states gave those merchants an unfair advantage.
“The previous law rewarded what was really a form of tax evasion that accelerated the demise of Main Street and all brick-and-mortar retailers,” Storch said.
Marketplace Worries?
That advantage has shrunk in recent years — just look at Amazon, whose growing distribution power requires it to build warehouses in multiple states, gradually erasing its protection from the remittance of state sales taxes. But in the wake of Thursday’s Supreme Court ruling, there are questions about the impact of new sales taxes on third-party sellers.
“Online retailers that host small businesses, like eBay, would be responsible for collecting the sales tax,” said John Buhl, spokesman for the Tax Foundation, a think-tank based in Washington, D.C., according to MarketWatch on Friday (June 22). “Small businesses selling goods on these sites will charge their customers any additional sales tax. Sellers may also see increased administrative costs as they manage this new sales tax regime.”
For its part, eBay is looking to Congress to make sense of what the marketplace operators view as a potentially chaotic situation, given the lack of standardization of those new taxes. The ruling “confirms that small businesses are clearly viewed differently by the court,” eBay said in a statement to MarketWatch. “Now is the time for Congress to provide clear tax rules with a strong small business exemption.”
On a similar note, Etsy also urged Congress to act to protect “microbusiness.” Earlier this month, the retailer “increased the fees it charges its sellers … which will allow Etsy to increase direct marketing spending and make investments” in customer support and other areas, MarketWatch added.
Big Ticket Blues?
Online sellers of big-ticket items also could feel the pinch from sales taxes, according to a report in TheStreet.
“The decision in favor of South Dakota potentially hurts both Wayfair and Overstock because they both sell big-ticket items such as furniture, which would come with hefty sales taxes if bought at a brick-and-mortar retailer,” the report said. “That’s also true with electronics such as those sold by online retailer Newegg.”
Friday was only day one of a new tax world for eCommerce. It will take time for consumers to figure out what, if anything, that means for them, but with the holiday season fast approaching, the first real impacts of the Supreme Court ruling are not that far out.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More