Thanks to the Supreme Court of the United States, online shoppers will soon collectively pay between $13 billion and $20 billion more a year than they already were. Why? A SCOTUS decision last week will allow states to start collecting sales taxes from most internet purchases for the first time.
In 2016, nearly 22% of small business owners didn’t know their effective tax rate, according to a CNBC Small Business Survey. Business owners are encouraged to keep their in-store and online purchase revenue separate so they know which are applicated for sales tax, and this could cause some major confusion. The National Retail Federation is calling this ruling a “major victory” for retailers.
“Retailers have been waiting for this day for more than two decades,” said NRF’s president and CEO, Matthew Shay. “The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well. 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.”
The Supreme Court’s decision was five to four. The case was South Dakota v. Wayfair. The state of South Dakota was suing Wayfair, an e-commerce retailer that doesn’t collect state taxes. Prior to the ruling, businesses were required to collect state sales taxes only from buyers who lived in the state where the business had a physical presence. That’s not the case anymore.
While many people are probably seeing this change as a negative thing, there is a silver lining. With the extra revenue in the states’ hands, it could allow states and cities to spend more money on services, fix roads, improve schools, or even lower other taxes.
Brian Kirkell, a principal at tax audit and consulting firm RSM, says, “Once we get past the short-term hurt to consumer spending power, we’re likely to see those amounts returned to us indirectly as states spend surpluses either through reduced taxes, infrastructure spending or the expansion of business incentive programs.”