Gird your (digital) wallets!
The Supreme Court has ruled that states can charge online retailers sales tax, even if they don’t have a physical presence in the state. That means that some of the biggest online retailers — including Wayfair, Overstock.com, and Newegg, who were named in the suit against the state of South Dakota — may soon have to pass on that additional cost to consumers.
“Each year, the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States,” Justice Kennedy wrote in his Court Opinion.
How does this affect the gargantuan elephant in the room, Amazon? Amazon actually already charges sales taxes on the goods that it sells directly. But the third party sellers on Amazon do not. So you might have to start paying sales tax alongside those non-Prime shipping charges. Ouch.
The Supreme Court ruled 5-4 in favor of South Dakota. It overturned a 1992 Supreme Court ruling that established that online retailers didn’t have to pay sales tax, which the New York Times says helped fuel the rise of online shopping.
Bloomberg reported that the stocks of Amazon, Wayfair, Etsy, and eBay all fell following the ruling.
It’s clear that the court’s decision will mean extra cash for states. But that money is likely to come out of the pockets of consumers. And may make it harder for shopping startups to break through.