Supreme Court ruling a win for traditional stores

States can now require tax on online purchases

NEW YORK • Chalk up another victory for brick-andmortar retailers.

Stores with physical locations like Walmart Inc. and Target Corp. are on a winning streak after the U.S. Supreme Court ruled that states can require the collection of sales tax on internet purchases, overturning a 1992 decision that traditional retailers said put them at a disadvantage with online competitors.

National retailers with actual stores were already required to collect the taxes, while internet-only competitors and upstarts could sometimes skip them, making their online goods look cheaper.

The news is a welcome change for a retail sector that’s endured a brutal few years with surging bankruptcies, store closings and the liquidation of big-name chains like Sports Authority Inc. and Toys R Us Inc.

It also follows last year’s string of successes, when retailers helped to kill a levy on imported goods and saw their federal taxes slashed with a national overhaul.

Now, the retail survivors have one fewer excuse to blame for their woes.

“They have, in some ways, been hiding behind excuses like a tax differential,” said Edward Yruma, an analyst for KeyBanc Capital Markets. Their complaints have resonated less in recent years as shoppers’ migration online has been more rooted in convenience than price, he said.

“What’s driving the success of online players is this is how the consumer wants to shop today,” Yruma said. “It’s that simple.” Shares of Wayfair Inc. initially plunged as much as 9.5 per cent to US$105.11 after the ruling was announced, before paring most of the loss after the company said it doesn’t expect “any noticeable impact.”

Amazon.com Inc. dropped as much as 1.9 per cent to US$1,717.56, while Walmart — which only gets about three per cent of its U.S. revenue online — reversed earlier declines to gain as much as 1.1 per cent to US$84.55. Best Buy Co. Inc. advanced as much as 2.5 per cent.

The decision “finally brings sales tax collection into the internet age,” Best Buy said in a statement, “and reinforces the basic American notions of fairness and a level playing field for all who choose to compete in the marketplace.”

Industry representatives hailed the decision.

Matthew Shay, head of the National Retail Federation, said the Supreme Court ruling “clears the way for a fair and level playing field where all retailers compete under the same sales tax rules.”

Deborah White, general counsel for the Retail Industry Leaders Association, said her group “couldn’t be more pleased with the outcome.”

The long-term impact of the Supreme Court’s decision remains to be seen.

States were already collecting about 75 per cent of the potential taxes from online purchases, according to the Government Accountability Office. The portion not being taxed could total as much as US$13 billion a year, the GAO said.

“No one thinks that sales tax is the only thing that drives sales to one retailer over another, but it certainly is a thing,” said Eric Citron, partner with Goldstein & Russell. “The magnitude of the price differential should really be enough to make a real difference to consumer decision making.”

Many large online sellers were already collecting sales tax in states where they have a physical presence — a legal qualifier under the 1992 ruling in Quill Corp. v. North Dakota.

Furniture-seller Wayfair, for example, collects the levy on about 80 per cent of its sales — a reflection of its expansion as it opens more warehouses distribution centres across the country.

Amazon says it does collect state taxes on its online sales. But levies on sales from its online marketplace, where third parties offer goods, are collected at the seller’s discretion. These sales account for about half of online giant’s retail revenue. A handful of states already have laws requiring marketplace participants to collect state levies.