U.S. Supreme Court Rules States Can Ask Ecommerce Companies to Collect Sales Tax

Small-business owners could suffer

The ruling may push Congress to act and put forth legislation addressing the issue. Getty Images
Headshot of Ann-Marie Alcántara

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In a 5-4 ruling, the U.S. Supreme Court decided that states can require ecommerce companies to collect sales tax, upending an industry and possibly pushing the issue towards Congress to ultimately resolve.

The ruling, in South Dakota v Wayfair, sided with South Dakota’s 2016 state law and overturned a previous 1992 decision in Quill Corporation v North Dakota, which did not let states ask companies without a physical location in the state to collect sales tax. Of course, in 1992, companies like Amazon, Wayfair and Overstock weren’t even in existence and the ecommerce landscape looked nothing like how it does today.

Wayfair and Overstock both issued statements welcoming the change but also urged Congress to push legislation that would put both ecommerce companies and traditional brick-and-mortar stores on the same level.

In a prepared statement, Wayfair said:

We welcome the additional clarity provided by the Court’s decision today. Wayfair already collects and remits sales tax on approximately 80 percent of our orders in the United States, a number that continues to grow as we expand our logistics footprint. As a result, we do not expect today’s decision to have any noticeable impact on our business, as it may on other retailers who do not currently collect and remit sales tax. Wayfair has long supported a legislative solution that would establish a level playing field for brick-and-mortar and online retailers by permitting states to collect sales tax on online sales. While we believe the Court was not the ideal venue for creating this level playing field, we expect that today’s decision will bring clarity and certainty to this issue.”

Overstock issued a similar sentiment from executive and board member Jonathan Johnson:

“Though the impact of the Court’s ruling today will be clarified by further proceedings in the lower court, we are prepared to comply with any outcome, and the decision will have no appreciable impact on our business. Today, the U.S. Supreme Court has re-shaped the interstate commerce landscape in a move that could impact small business innovation on the internet, which has been a driving force behind our nation’s economy for the last 15 years. . . Unless Congress responds, the court’s ruling my remove key entrepreneurial opportunities before they even get out of the heads of the inventors.”

Bruce Winder, a retail analyst, sees the decision as a long time coming—and another obstacle that independent retailers will have to face.

“There’s going to be winners and losers,” Winder said. “Etailers will now have to charge tax on their products [and] consumers will grumble a bit as well because they probably enjoyed not paying the tax on online goods.”

Jason Goldberg, svp commerce at Publicis.Sapient, also believes that small-business owners who were hoping to benefit from this ruling will end up suffering.

“There are no small brick and mortars that don’t sell online,” Goldberg said. “It’s an important part of business today. Walmart and Amazon are a much bigger problem for you than some specialty online retailer—and Walmart and Amazon already collect tax.”

Web Smith, founder of 2PM Inc., a curated, subscription commerce newsletter, echoed Goldberg and warned that small businesses will now miss out on opportunities to bring their products to other states and cities. However, Smith is positive that Congress will end up passing some legislation that rectifies the ruling—but possibly in favor of big companies versus smaller owners, and one that appeases President Trump and hurts Amazon in some form due to his growing ire of the company.

“Given these two influences, I see that Congress is going to push this law through and won’t put much thought into it,” Smith said. “Those etailers, the small-business owners, are going to be forgotten.”

@itstheannmarie annmarie.alcantara@adweek.com Ann-Marie Alcántara is a tech reporter for Adweek, focusing on direct-to-consumer brands and ecommerce.