US Retail Boosted As Court Rules On Online Sales Tax

Last updated: 13 June 2023 Views: 2245
US Retail Boosted As Court Rules On Online Sales Tax

Retail outlets in the United States have been given a significant boost, as the country’s Supreme Court rules against online retailers in a major tax court case. In a 5-4 decision against major online storefronts Newegg, Wayfair and, the Supreme Court ruled that individual states may force online retailers to collect sales tax in their local jurisdiction.

Until now, many online retailers were able to base themselves in low or zero tax states and could claim that the point of sale was in that location, rather than the location of their customers. The new ruling puts them on a level playing field with retailers, who have always had to collect tax based on the location of their outlets.

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The ruling follows similar moves around the world to update tax for the digital age. The most notable ruling is in the European Union, where Value Added Tax (VAT) on digital products and services is charged at the point of purchase. Additional measures are being implemented from 2021 to streamline distance selling rules.

The decision by the court upended precedent set in 1992, which freed companies from having to pay local sales tax unless they had a "physical presence" in any given state. This previous decision, occurring at the dawn of the internet age, has been cited as a major factor in the contrasting fortunes of online businesses and ‘mom and pop’ retail stores.

There are some limits to the decision, and online stores will have some time to explore methods of compliance. States are still not permitted to impose “excessive compliance burdens” on sellers, raising the prospect that a similar system to the EU’s MOSS VAT portal could be created.

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Some have claimed that the ruling will increase Amazon’s dominance of the eCommerce space, and only serve to harm its competitors. Amazon already collects sales tax in each US state on all of its own transactions. The status of its 3rd party ‘Marketplace’ sellers is currently unclear. Some states already require eCommerce platforms to collect sales tax on behalf of their 3rd party sellers, while others have no such legislation.

Analysts expect that states may choose to chase down individual sellers who fail to pay rather than Amazon, as has been the case elsewhere. Pressure in the UK has recently forced Amazon, eBay and other online marketplaces to force 3rd party sellers to provide valid tax information.

Other online retailers, including co-defendants Wayfair and Overstock, are much less stringent in their tax collection. The financial burden of compliance may be exacerbated by the administrative challenge of paying tax in each state, as well as the technological challenge of ensuring 3rd party compliance.

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While Amazon may not face too much of a penalty, the ruling is a long overdue boost for brick and mortar retailers, particularly suppliers of more niche products, or those which benefit from being seen and tested. The additional revenue will also be a boon to the US economy, which has now been adding jobs for 92 consecutive months.

We’ll endeavour to keep you up-to-date on the latest US business news. For more information about company incorporation in the USA, along with any other issues including remote bank accounts, EIN numbers and visas, please contact us on 0033 (0)1 53 57 49 10 or email us from our contact page and we’ll be happy to help.

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