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Online Retailer Tax Laws Set To Change After 2018 Ruling

Bobby Gill | July 2, 2018


For some time now, online retailers benefitted from not having to collect sales tax. This is one of many key advantages brick-and-mortar retailers did not share.

This changed this month when the Supreme Court ruled that state and local governments are permitted to collect sales tax from internet retailers. This decision reverses a 1992 ruling, which stated that catalog-based internet retailers did not need to collect sales tax within a state if they did not have a physical presence there.

What are the further consequences of this decision and how much of an impact will it make for online retailers and the ecommerce industry as a whole? Let’s investigate.

The Effect on Internet SMBs

It’s already been pointed out that this decision may have significant consequences for smaller retailers that rely on bigger online retailers to reach customers. For example, more than half of all sales made on Amazon are made by third-party sellers via Amazon Marketplace.

This feature allowed smaller businesses to leverage the reach that Amazon offers. While it’s likely that major ecommerce brands will manage to survive despite these changes, the impact on small, third-party internet retailers could be substantial.

Why Brick-and-Mortar Brands are Celebrating

However, brick-and-mortar retailers generally consider the ruling to be a victory. They believe these new requirements will essentially level the playing field between them and internet retailers.

The decision also provides brands that operate both online and physical locations to focus on developing an omni-channel retail experience. While it’s too early to determine how sales tax will impact shopping habits, it’s possible that customers may be more inclined to make purchases in physical stores if the advantage of avoiding sales tax by shopping through online retailers no longer applies.

How Internet Retailers Can Adapt

Focusing on the omni-channel experience can help online retailers seamlessly bridge the gap between ecommerce and traditional shopping.

For example, British fashion retailer Oasis arms its in-store sales representatives with iPads that can be used to look up information about an item and process transactions. If an item is no longer in stock, the representative simply places an online order via the iPad. As other technologies, like the IoT in the supply chain and augmented reality continue to emerge, the capabilities of a feature like Oasis’ will only continue to grow and improve the shopping experience.

Developing a long-term omni-channel strategy may be necessary for internet retailers both large and small. In the meantime, many of the companies potentially affected by the ruling, like eBay and Etsy, have released statements indicating that navigating the various state regulations involved in tax collection may pose significant challenges to ecommerce companies.

Looking to the Future of Online Retail

This is especially true in regards to collecting sales tax from third-party sellers. Both eBay’s and Etsy’s statements recommend that Congress now step in and establish clearer guidelines and rules, with the possibility of exemptions for small internet retailers.

Again, predicting exactly how this ruling will impact the ecommerce landscape and online retailers in the long run isn’t possible at this time. It’s highly likely the story will continue to develop over the next few months and years. That said, internet retailers should begin strategizing now to make the necessary adjustments.

Bobby Gill
Co-Founder & Chief Architect at BlueLabel | + posts

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