WORTHINGTON - The recent U.S. Supreme Court decision on South Dakota v. Wayfair Inc. answered the prayers of local brick-and-mortar businesses that have long complained that online retailers enjoy a competitive advantage by not having to charge sales tax.
The court reversed an old 1992 ruling that barred states from requiring businesses to collect sales tax unless they have a significant presence in the state. This ruling will effectively allow states to force online retailers to charge state and local sales taxes on any item being shipped to the area.
The truth is that in Minnesota, most of the biggest retailers - Walmart, Target, Best Buy and Amazon (sort of) - already charge state and local taxes to items shipped to say, Worthington, as they have a physical presence in the state.
Amazon only charges sales tax on items it sells directly. Third-party vendors, which now make up more than half of the website’s sales, are generally not required to charge sales tax. Same goes for eBay vendors.
In 2017, Minnesota became the first state to pass a bill requiring companies that operate marketplaces and have any sort of presence within the state to charge sales tax, even on third-party sales. The law, which would require Amazon and eBay to charge tax on all of its items, would have gone into effect starting July 1, 2019, but its language says the could be enforced sooner if the Supreme Court makes a new ruling.
The Minnesota Department of Revenue said it is “analyzing the court’s decision” and will provide guidance to retailers within 30 days. With the ruling, taxes could even be enforced on online-only businesses such as Wayfair, Overstock and Newegg.
So how does this affect things?
This is a big win for state and local budgets. The Government Accountability Office found that the state of Minnesota would gain anywhere from $132 million to $206 million if tax collection on remote sales were enforced. In Worthington, with its half-percent sales tax, the ruling could mean more revenue for the city.
This is a loss for consumers who shop online. They’re going to pay more - 7.375 percent more as of right now. Not much else to say here.
The real question is: Is it a big win for brick-and-mortar retailers? National Retail President and CEO Matthew Shay seems to think so.
“Retailers have been waiting for this day for more than two decades,” he said. “The retail industry is changing, and the Supreme Court has acted correctly in recognizing that it’s time for outdated sales tax policies to change as well. This ruling clears the way for a fair and level playing field where all retailers compete under the same sales tax rules whether they sell merchandise online, in-store or both.”
The question for main street retailers is: will this change affect the habits of the new-age shopper? The change will close the gap in price somewhat, but were people buying online because the items were significantly cheaper? Or because of the convenience?