The U.S. Supreme Court has just overturned a decades-old
tax ruling that had allowed many internet retailers to avoid having to charge
their customers sales tax.
The overturned ruling only let states require businesses to
collect sales tax from customers if that business had a physical presence in
the state — whether it be a storefront, corporate office or warehouse — in turn
creating a loophole for online retailers like Amazon, who for years had a
pricing advantage since their customers did not have to pay tax. That loophole
appears to be closing.
In a 5-4 decision delivered today, the Supreme
Court sided with the state of South Dakota, which enacted a law requiring
retailers — even if they reside out of state — to collect sales tax if they
“deliver more than $100,000 of goods or services into the State or engage in
200 or more separate transactions for the delivery of goods or services into
While traditional retail trade groups like the National
Retail Federation applauded the move as one that “clears the way for a fair and
level playing field,” Amazon will likely be just fine. You can expect Amazon to
remain dominant here in the U.S. since it has distinguished itself by focusing
as much on convenience as price over the last decade.
Thursday’s ruling by the U.S.’s highest court does swing
open the door for states across the country to require internet merchants to
collect sales tax from online customers. As a result, stocks of publicly traded
e-commerce companies like Etsy, Wayfair and Amazon dropped on the news.
But there are a few likely reasons why Amazon’s stock price
dropped only a tiny bit and why I’d be very surprised if the ruling hurt
Amazon’s long-term growth trajectory.
First, Amazon already collects sales tax in states across
the U.S. on goods that it stores — and sells itself — known in the industry as
“1P” or “first-party sales.” First-party sales account for just under half of
all Amazon purchases. Amazon started collecting sales tax on 1P sales in many
states in conjunction with the opening of an Amazon fulfillment center there.
When it comes to third-party sellers who hawk their wares
on Amazon — which account for just over 50 percent of items sold worldwide on
Amazon — things are a bit different.
Historically, these merchants have decided when and if to
charge sales tax to Amazon customers. But starting this year, Amazon began
collecting and remitting sales tax on third-party orders being sent to
customers in Washington as well as Pennsylvania — states that have passed
so-called “Marketplace Facilitator” laws requiring a marketplace like Amazon to
collect tax on behalf of the merchants who sell on its platform.
A few other states have already passed similar legislation,
meaning the list of places where Amazon collects tax on behalf of its sellers
will grow. Amazon is prepared for this.
If that list does grow long and Congress does pass new
legislation that impacts small online merchants as much as big ones, it’s
possible that some Amazon merchants could become less popular with customers
because their prices will rise to account for the new tax-collection rules. At
the same time, Amazon’s less-powerful competitors will have to deal with this
But the real key here is that Amazon has spent more than a
decade — since at least the creation of Amazon Prime in 2005 — differentiating
itself not just through the pricing advantage it sometimes had over traditional
retailers, but by focusing on becoming the most convenient place for consumers
to shop for an increasing variety of products.
For years, it accomplished that through Prime’s unlimited
two-day delivery promise for a flat annual fee. Over the last few years, the
convenience differentiator has expanded to include a wide array of goods
available for free same-day delivery, and thousands of goods available —
including Whole Foods groceries — within two hours in major cities through the
Prime Now program.
Add to this list new initiatives like no-checkout
Amazon Go stores and in-home delivery,
and you can see that convenience is at least as important to Amazon as always
having the absolute lowest price.
As Amazon critic Stacy Mitchell, of the Institute for Local
Self-Reliance, said on Twitter: “It’s good news but too bad the Court didn’t
act years ago, before Amazon grew to rule online commerce.”
here for the original article from Recode.