To (Online) Tax or Not to Tax?

To pay or not to pay?

Author: Krista Garcia

April 16, 2018

Despite ecommerce existing for more than two decades, there has never been a consensus about sales tax collection. 

That might change with the South Dakota v. Wayfair case that is being heard this week. Online retailers Wayfair, Overstock.com and Newegg.com filed a brief with the US Supreme Court to uphold a 1992 ruling, Quill v. North Dakota, that found retailers were only required to collect taxes in states where they had a physical presence. 

Many say that decision—involving a mail-order floppy disk company—is outdated and didn’t anticipate today’s online retail environment, in which ecommerce accounts for 10.0% of total retail sales in the US. Per a report from the US Government Accountability Office (GAO), it is estimated that state governments could have collected around $13 billion more in 2017 if online sales were subject to tax. 

It's easy to see why brick-and-mortar retailers might want to level the playing field. But for the most part, shoppers take a different view. 

A September 2017 survey from Rasmussen Reports found that 66% of US consumers opposed an online sales tax, while 13% weren’t sure what they thought of it. And in a more recent YouGov poll from April 2018, the largest proportion of US internet users were against it (36%). But nearly the same number thought it should be required (34%). 

In terms of which state should be able to collect sales tax from online sales, the highest percentage of respondents were unsure (35%), while 27% said it should be the state where the customer lives and 12% the state where the business selling the product is located.

This ruling will have a larger impact on smaller retailers and third-party merchants selling on online marketplaces like Amazon, eBay and Etsy. 

Amazon collects sales tax on its own goods but doesn’t enforce regulations for third-party merchants, which make up half of its sales. According to Internet Retailer, Wayfair charges sales tax in five states, Overstock also in five and Newegg in four. Many large online retailers already pay sales tax in most states since they also have a physical presence across the nation.