A milestone decision by USA lawmakers could soon force Canadian online retailers to pay sales taxes on products sold into the US, part of a long-awaited ruling that will have a ripple effect across Canada’s e-commerce sector.
Online giant Amazon already operates in most states, and already collects sales taxes. She said local brick-and-mortar stores deserve to operate on the same playing field as e-commerce merchants.
The decision is a win for state and local governments assuming they rewrite their tax laws to take advantage and a loss for consumers. The court gave South Dakota a victory, knocking aside the physical-presence rule as arbitrary and obsolete in the digital age.
If you enjoyed the illicit thrill of avoiding the 6.25 percent IL sales tax on Internet purchases of running shoes or steaks, you’ll mourn the court’s opinion in South Dakota v. Wayfair. “Many don’t even have a US bank account to debit or send funds from to pay the taxes, which means big credit card fees or complicated global wires for small amounts of money”. These large businesses support giving states new taxing powers because they wish to use government power to make sure their smaller competitors stay small.
Wayfair Inc. plunged as much as 9.5 percent on the news, and was down 2.7 percent to $113.05 at 10:55 a.m.in NY trading. Online sellers that haven’t been charging sales tax on goods shipped to every state range from jewelry website Blue Nile to pet products site Chewy.com to clothing retailer L.L. Bean. “It’s taxes and regulation all combined in one unfortunate tax”, says Raymond Keating, chief economist with the Small Business & Entrepreneurship Council.
“In effect, Quill has come to serve as a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a state’s consumers – something that has become easier and more prevalent as technology has advanced”, the court observed. Will masses of people stop buying over the internet because they are suddenly going to be paying a sales tax?
South Dakota was anxious about lost sales tax revenue. Rather, it’s a more efficient way of enforcing existing tax laws.
State and local officials are generally pleased with Thursday’s decision by the Supreme Court of the United States that allows states to require out-of-state online businesses to collect sales tax.
The ruling is a victory for big chains with a presence in many states, since they usually collect sales tax on online purchases already. In two states, Washington and Pennsylvania, it also does so for third-party sellers using its platform.
“It’s likely to cause much confusion in regards to both filing and more importantly for worldwide merchants, paying those taxes”, Nicholls said.
Internet retailers say they are especially anxious tax collectors will try to impose years of retroactive liability, which the laws of many states allow.
What happens next? IL has on the books a provision identical to South Dakota’s, so it should be able to move quickly to require sales tax in most online transactions.
In an effort to comply with the decision, many small business owners face increased obligations and expenses.
“The South Dakota model is a safe bet for states, so it’s reasonable for them to start there” said Max Behlke, who directs budget and tax issues at the National Conference of State Legislatures. Business owners may either need to absorb the extra costs or pass them onto customers, potentially resulting in higher retail prices.
On a related note, reportedly, a group of employees from Amazon is forcing the company leadership to prevent the sales of its facial recognition software to law enforcement.