Sales-Tax Ruling Poised to Hit Small Businesses Hard
June 21 2018 - 4:34PM
Dow Jones News
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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