Online sales tax rule overdue
Once upon a time, Amazon was a fledgling online bookseller and retail experts were uncertain if consumers would trust a stranger enough to purchase their wares on Etsy.
Both because they were concerned about the fragile nature of this new industry — and because a 1992 U.S. Supreme Court ruling restricted states from collecting sales tax from businesses that were located out of state — most state officials across the country moved cautiously to demand sales tax from online companies. How things have changed. Business concepts that once seemed whimsical, like Etsy and Ebay, are now wellestablished public companies.
Amazon is a retail giant that owns everything from a brick-and-mortar grocery chain (Whole Foods) to an online pharmacy business (PillPack).
E-commerce retail now accounts for nearly 10 percent of total sales in the U.S., and that number is expected to skyrocket in the years to come.
Shopping online offers many benefits — it can save time, offer convenience, and allow consumers to make easy price comparisons. But as more and more Americans did their shopping online, state officials realized they were being hurt by another benefit consumers were eager to take advantage of: many online sales allowed them to avoid sales tax.
The U.S. Supreme Court officially closed that loophole with a June 21 decision that allows individual states to require that online retailers collect and remit sales tax.
The consequences of the decision could be enormous.
California has had a law on the books since 2012 compelling Amazon and certain major retailers to collect sales tax. But tax officials estimate that the state is still missing out on about $1.8 billion in tax revenue from internet retailers. The Government Accountability Office estimated that in 2017, state governments could have gained between $8 billion and $13 billion if they had the authority to collect sales taxes from all remote e-commerce sellers.
That’s a lot of money for pensions, education and other public services.
Outstanding questions remain, including whether or not states will attempt to collect sales tax from all retailers, even the occasional eBay seller. (The Supreme Court case upheld South Dakota’s sales tax law, which only requires merchants earning more than $100,000 in sales or 200 transactions per year to collect sales tax.)
But overall, the idea behind this court decision is the correct one. E-commerce is no longer a fringe industry that offers an unusual alternative to a few consumers; it’s a serious competitive industry that should play by the same rules as everyone else. Those rules include the collection and remittance of sales tax.