While many industry professionals applaud a recent Supreme Court decision related to sales taxes in e-commerce, they don’t expect immediate impact.
The ruling opened the door for states to require certain sellers headquartered outside their barriers to collect sales taxes, if they serve customers within the state. This clears the way for states to require web-based businesses to remit sales taxes.
Before, states could only require vendors to charge and remit sales taxes if the seller had a physical presence within state lines. Otherwise, the buyer would be responsible for paying taxes to the state at the same rate.
But consumers so rarely self-tax that the state of South Dakota estimated its annual income losses at $48 to $58 million. So the state passed a law requiring certain out-of-state sellers to collect sales taxes. When some major online retailers failed to comply, the state sued, asking the court to validate the law. The online retailers called the South Dakota law unconstitutional, but the trial court and the State Supreme Court agreed with South Dakota.
SCOTUS affirmed the lower-court decisions, overruling the long-time precedence of two key cases often cited by retailers in opposition to internet sales taxes.
The decision gained mixed reactions in the business community. The National Retail Federation welcomed it. “Retailers have been waiting for this day for more than two decades,” said NRF President/CEO Matthew Shay in a statement. “This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both.”
Others believe the technology and resources necessary to manage the various state-to-state tax rates and filing requirements would place undue burden on smaller operations.
Within the pool/spa industry, brick-and-mortar retailers and industry groups believe SCOTUS’ decision was fair and right. However, some aren’t convinced it will have a great impact. The decision doesn’t result in sweeping or immediate change. In fact, it doesn’t cause any change at all until individual states pass their own laws. Then each will have its own requirements.
“It was a great step, but there’s no [federal] legislation to support it,” said Lawrence Caniglia, president/CEO of the Association of Pool and Spa Professionals. “Are we now going to have a hodge-podge of requirements around the country where it’s going to become a chaotic mess?”
Some states are more likely than others to force the e-commerce sales-tax issue, with the impact somewhat dependent on tax rates. The savings are more likely to serve as a motivator in California, Washington and other states where taxes approach 10%.
“In some states, it certainly may level the playing field a little bit more,” said Pat Walls, CEO of Las Vegas-based United Aqua Group. “The consumer might be more likely to go to a brick-and-mortar retailer if they know they won’t get that 7%-10% off that they were getting before ...”
These professionals hope to see the passage of federal legislation that requires the collection of sales taxes but doesn’t place an onerous burden on e-commerce.
“If the feds do act, it puts everyone on a level playing field, no matter where they operate,” Walls said.
Things had already started to equalize at least a small bit, some say. Many major web retailers, including Amazon, already charge sales taxes. Online prices have increased for other reasons as well.
“I think in general we’re seeing pricing on the internet going up, because costs of shipping are getting higher and higher,” said Brian Quint, president of Aqua Quip in Seattle. “So we’re starting to see some narrowing of the gap between e-commerce pricing and our pricing.”
Brick and mortar retailers also realize that internet shoppers are drawn by more than a tax savings. “Is it that the customer wants to shop in the middle of the night in their pajamas?” Quint asks. “If that’s the case, a 10% sales tax delta won’t make a difference. If 10% of a purchase price is such that it will motivate someone to buy locally, it will make a difference.”
