Over the past few years a growing number of big internet retailers have started collecting sales tax on some or all purchases and passing the taxes on to state governments.
States have been pushing Amazon and other companies to collect sales tax for years, arguing that the rise of internet shopping has led to a loss of revenue for states. But up until recently courts had largely ruled that online retailers only had to collect taxes in states where they had a physical presence (such as local stores, warehouses, or distribution centers).
Now the US Supreme Court has ruled that states may require internet stores to collect sales tax even if those stores have no physical connection to the state.
In other words, say goodbye to tax-free online shopping.
To be clear, shoppers have actually always been required to pay sales tax on internet purchases. It’s just that internet retailers weren’t always required to collect taxes if they didn’t have a physical presence in a state.
So if you bought a $1000 TV from an online retailers in a state with a 6 percent sales tax, you were supposed to send a check for $60 to your state government. It’s just that almost nobody actually did that, and the states didn’t have a good way for keeping track of your online purchases.
A lot of things have changed since then… and it’s arguable that part of the reason for that is because of the sorta, kinda tax-free shopping experience that the internet made possible. Would Amazon have become as big as it has if the company had to change the same sales tax rates as bricks and mortar competitors such as Walmart, Best Buy, and Barnes & Noble (Amazon started as an online book store)?
Maybe. The efficiencies of scale would still have been there, allowing Amazon to offer competitive pricing by avoiding the costs associated with physical stores. But it probably would have taken longer and maybe the company would have faced more competition.
Right now Amazon collects sales tax on first-party goods it sells in states that have a sales tax. The new ruling doesn’t automatically require Amazon and other companies to charge tax on third-party goods, but it paves the way for states to start enacting laws that will require online retailers to do so.
To be clear, customers who shop