Supreme Court Sales Tax Ruling Hits Small Online Players, Boosts Brick-And-Mortar

eliminating one of their biggest advantages — pricing. Online-only retailers will now be required to collect sales taxes even in states where they don’t have a physical presence, the Court ruled.

In a 5-4 ruling against Wayfair, Overstock.com and Newegg, the justices overturned a 1992 Supreme Court precedent from Quill Corp. v. North Dakota. Quill had barred states from requiring businesses with no “physical presence” in that state — such as out-of-state online retailers — to collect sales taxes.

Retailers that still make the bulk of their sales in-store have long argued that they operate at a disadvantage by having to charge sales taxes, while many of their online competitors do not.

For smaller pure play retailers, the issues are about both cost and complexity. SMBs that aren’t familiar with operating under sales tax rules across multiple states and jurisdictions will have to implement tax compliance software and train themselves to use it. In his dissenting opinion, Chief Justice John Roberts agreed that the burden would “fall disproportionately on small businesses.” Roberts wrote:

“People starting a business selling their embroidered pillowcases or carved decoys can offer their wares throughout the country — but probably not if they have to figure out the tax due on every sale…And the software said to facilitate compliance is still in its infancy, and its capabilities and expense are subject to debate.”

Retail TouchPoints has compiled insights and opinions from industry analysts and trade association leaders on the ruling, including who are the biggest winners and how this will affect e-Commerce retailers going forward.

Bryan Gildenberg, Chief Knowledge Officer, Kantar Consulting

“The biggest winners are Amazon and large brick-and-mortar players. The ruling impacts large scale and pure play online operators that don’t have operations in multiple states…those are the retailers affected.

“Amazon’s third-party seller network should not be affected. The Supreme Court clearly states that the law needs to have a safe harbor for small businesses. In the end, the big challenge is not so much absolute price but complexity — it’s now harder for those retailers to communicate price to customers as clearly as they used to.”

Lee Peterson, EVP of Brand, Strategy and Design, ‎WD Partners

“Clear winners? The states who collect the taxes now of course, but also huge companies like Amazon and Walmart, that are already charging taxes in many places and can ‘low-ball’ prices on a grand scale and make up for any consumer injury on the tax front. Another winner is physical stores. There certainly was/is a percent of the online customer base who avoided paying sales tax in any way possible, and buying online has certainly enabled that. No more.

“Clear losers? Smaller retailers — it used to be, you could sell your goods anywhere and at a fair price, now, if your operation sells mostly to New Yorkers or Californians, big downside. Unlike huge retailers who can take from one big kitty (or AWS) and save the day when they compete in high tax states, no such advantage will happen with smaller retailers. It’s a big company bonanza.

Jack O’Leary, Senior Analyst, PlanetRetail RNG

“The biggest winners in this ruling are scaled, online retailers already collecting taxes across most…