A landmark ruling could completely transform the e-commerce industry as we know it. What many analysts are calling “bad news” for thousands of major online retailers will also certainly impact e-commerce businesses of many sizes and revenues. So here’s everything you need to know as you prepare.
The 5-4 ruling overturned a 1992 Supreme Court precedent that essentially prohibited states from collecting sales taxes from businesses without a “physical presence” in that state. So for years, large, out-of-state corporations (ie. the likes of Amazon, Wayfair, etc.) have gotten away with a nice “judicially created tax shelter,” giving consumers a big incentive to purchase online. And as a consequence, it also incentivize businesses to avoid having a physical presence at all, according to the court.
With the decision, Justices sided with South Dakota giving them the ability to collect taxes from online retailers, after suing Wayfair over the old precedent. Court deemed the law “outdated,” as CNN quoted Justice Anthony Kennedy saying, “The Internet’s prevalence and power have changed the dynamics of the national economy. The expansion of e-commerce has also increased the revenue shortfall faced by States seeking to collect their sales and use taxes.”
So now, as these e-commerce businesses are forced to assess sales taxes or face a lawsuit, consumers will most likely begin shopping local again for things like jewelry, electronics, furniture and more. That’s because they will likely find higher prices for online purchases as online retailers potentially collect billions in sales taxes.
While thirty-one states already impose online state taxes in some form, the ruling is likely to lead other states to try and collect sales taxes for purchases made from online businesses out-of-state. It may also lead many of these majority states to adjust their current laws as well.
The good news is the crafty, artisanal products offered on sites like Etsy or Ebay won’t have to up their prices due to the additional tax. That’s because businesses must have over $100,000 in sales or at least 200 transactions for South Dakota’s law to apply to them.
A statement by CNNMoney says the ruling shows “small businesses are clearly viewed differently by the Court.” Meanwhile, companies like eBay and Overstock are requesting clearer tax rules to show a strong small business exemption and lessen the potential impact of the ruling on internet innovation. The goal is to help small businesses continue to thrive online as well.
With a much more even playing field for brick and mortar businesses and online powerhouses, there will undoubtedly be a big shift in the purchasing decisions of consumers in the near future. To discuss your plan of attack (or defense) as an e-commerce business, contact us to make sure your marketing strategy is doing everything it can to help you not only survive, but thrive amongst the changes.