By Laura Stevens 

The businesses most hurt from the U.S. Supreme Court's internet tax ruling aren't the big online retailers -- instead, the losers will likely be the millions of small-business owners who sell on marketplaces such as Amazon.com Inc. and eBay Inc.

The Supreme Court on Thursday overturned a longstanding precedent that states can only require retailers to collect sales tax when they have a physical presence there. The old rule enabled online commerce to boom and helped drive an explosion of small businesses that sell their wares across online platforms.

But the new decision means that those millions of small businesses may now need to collect and remit sales taxes in the 45 states that have them. That could be an expensive and time-consuming task, especially if new rules differ between states.

"Trying to follow all the thousands of laws of tax jurisdictions across the country would put us out of business. That is all I would do all day, " said Cyndi Zlotow, who sells about $250,000 annually of apparel and other goods on eBay, Amazon and Etsy Inc. from near Chicago.

House Judiciary Committee members in a statement called the ruling a "nightmare" for American businesses and said small online sellers would be subject to audits by "over 10,000 taxing jurisdictions across the U.S. in which they have no say at the ballot box or representation in state and local government." They added that the ruling will hurt efforts to keep compliance burdens to a minimum for small businesses. "Today's decision will stifle online commerce, close businesses, and ultimately harm consumers."

The new ruling will have a smaller effect on big brick-and-mortar chains, like Walmart Inc. and Target Corp., which have so many stores they already are collecting and remitting sales taxes on many online purchases. And Amazon.com Inc., the largest U.S. online retailer, as of last year already collects sales tax on products it sells directly in every state that has one.

The ruling could, however, affect a range of online retailers like Overstock.com Inc. and Wayfair Inc. because internet-only retailers have had to collect and remit sales tax only if they had a warehouse, corporate office or other physical presence in that state.

More sharply, the court's decision could have a chilling effect on the millions of small independently owned businesses, which have fewer resources, that sell online. Those businesses largely rely on marketplaces like Amazon and eBay, which don't collect sales tax for most of these merchants. The ruling didn't change that.

Amazon recently said that wares are sold on its marketplace by more than one million small businesses, defined as having less than $7.5 million in annual revenue based on a U.S. Small Business Administration guideline. EBay says it has six million U.S. sellers, while online crafts marketplace Etsy Inc. claims some two million sellers world-wide.

It isn't exactly clear how new state laws might take shape, and what type of burden they may place on sellers. South Dakota's law -- which was the one presented before the high court -- allows exemptions for small businesses that had fewer than 200 transactions or $100,000 in sales in the state. The court flagged that was one of the reasons for its decision.

Ms. Zlotow, the Chicago-area seller, said that while she would likely stay below that threshold for South Dakota, the same limit in a bigger state with more customers would be too low.

Some states could follow Washington, Pennsylvania, Oklahoma and Alabama, all of which have passed legislation to mandate that marketplaces collect taxes on behalf of their sellers.

Meanwhile, Amazon, eBay and Etsy have been pushing Congress to pass a bill that would standardize the rules across states. Both Etsy and eBay reiterated Thursday they would continue to push for that solution.

Write to Laura Stevens at laura.stevens@wsj.com

 

(END) Dow Jones Newswires

June 21, 2018 16:19 ET (20:19 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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