Here are the basic facts you need to know:
A ruling from 1992 was overturned by the Supreme Court allowing online retailers to go around their tax collection responsibilities provided they are not physically present in the state.
Amazon turned out to benefit from the ruling according to experts
Sales tax are already collected by Amazon on it’s directly sold products and the ruling isn’t clear when it comes to the tax implications on third-party sales tax
Breaking Down The Amazon Tax Situation
The Supreme Court made a decision for sales tax to be collected by states from e-commerce companies and this has brought the attention of online retailers.
Amazon, the largest online retailer slightly similar to e-commerce, however, seems to benefit from the Supreme Court’s decision according to experts. A law professor from the University of Arizona said Amazon is collecting sales tax in every state and should be helped. Other companies such as the Wayfairs are directly hurting.
The Supreme Court’s decision overturned a ruling from 1992 that made online retailers skirt sales tax collection responsibilities in states where they’re not physically present. Since sales tax is already collected by Amazon on its products they directly sell in every state, the court ruling is expected to slightly affect how much Amazon charges for its products. The products Amazon directly sells accounts for about half of all units sold on their site. The other half of products being sold in Amazon are sold by third-party merchants on Amazon’s marketplace. This could mean they might have to face an additional burden on collecting sales tax in states that started taxing online sales.
What can Amazon Competitors expect from this ruling?
Companies such as the Wayfair or Overstock face a much bigger problem than its competitor Amazon because they haven’t been diligent or complete about sales tax collection in states where they don’t have a physical presence. It’s going to be difficult for them to beat Amazon on its prices because they would need to collect tax all over the U.S.
When Amazon was just starting, one of its competitive advantages is its ability to beat the competition on price. Their price advantage was a result of not charging sales tax. It is one of the reasons why Amazon became a huge company that we know of today.
Even though Amazon’s share was down less than 1 percent recently, Overstock experienced an even bigger drop of over 6 percent and Wayfair shares dropped by about 8 percent before getting back on track.
Amazon won’t really be heavily impacted and those medium-sized merchants that haven’t collect sales tax in a lot of U.S areas will be suffering more to the ruling.
Amazon and It’s Third Party Sellers
Amazon is now waiting for the Court’s decision on its third-party sellers in terms of collecting sales tax when they have also started to rapidly grow as part of the business. It’s unclear whether the Supreme Court will provide answers to the questions related to marketplace sellers.
There is an assumption that Amazon is hiding behind its marketplace in order to benefit from a tax exemption as they may still make it seem like it’s not a retailer and is not required to collect sales tax. A lot of legal questions are yet to be answered.
What Do Some States Say
There are states including Washington, Pennsylvania, and Minnesota that recently required Amazon and other online marketplaces to collect sales tax as a representative of their third-party sellers. Other states put the responsibility to the seller.
However, the new Supreme Court decision allowed states to run after individual sellers giving Amazon the exemption to deal with complicated tax collection process in different states.
Matt Boch, an attorney from law firm Dover Dixon Home said the ruling can slow down the adoption of marketplace collection laws and may require states to run after the platform sellers directly based on an economic nexus approach. In addition, he said it is best for the Congress to move and create a standardized approach on taxing online sellers. The different requirements and policies of each state under the current law make it hard to charge sales tax. There is nothing common in the way the state does it which is why Congress must standardize this issue to prevent it from getting out of control later on.
