Billions of dollars of goods sold each year by independent merchants on Amazon.com and other online marketplaces would be vulnerable to state sales taxes for the first time if justices decide to reverse a quarter-century-old precedent in a case before the Supreme Court this week.
In the case, South Dakota is seeking to overturn a longtime precedent under which states can’t require retailers to collect sales taxes unless the companies have a physical presence in the state. While Amazon.com Inc. itself collects sales taxes on its own products, it does not on most others’ sales through its platform.
Justices on Tuesday will hear arguments in the case, South Dakota v. Wayfair Inc., and a decision is expected by the end of June.
The current tax rules—from the era of mail-order catalogs—helped fuel the rise of internet commerce and spurred frustration among brick-and-mortar retailers, shopping-mall owners and state governments.
Tax and legal experts expect the court to overturn the precedent, freeing states to collect levies on future cross-state transactions. It isn’t clear what new standard might take its place or what rules states might impose.
President Donald Trump recently put the issue of sales-tax collection in the spotlight as part of his repeated attacks on Amazon, which people close to the White House attribute largely to his dislike of coverage of his administration by the Washington Post, owned separately by Amazon Chief Executive Jeff Bezos. Mr. Trump said that Amazon avoids taxes and that its growing dominance is “putting many thousands of retailers “out of business.”
The biggest effects would be felt on online marketplaces, where between $3.9 billion and $6.2 billion in taxes could have been collected on goods sold by smaller vendors in 2017, according to the Government Accountability Office. On such marketplaces, run by Amazon,eBay Inc. and others, independent sellers give the platforms a cut of their sales.
Merchants selling goods on Amazon’s global marketplace last year made up nearly two-thirds of gross merchandise volume, which totaled $313.4 billion, according to Factset analyst estimates. Half of all items sold come from those small or midsize businesses, according to Amazon.
A few states, including Washington and Pennsylvania, have already started trying to tax third-party online marketplace sales, and those efforts could accelerate after a Supreme Court decision. Read more at Wall Street Journal.
The easiest way for the states to avoid this problem is to levy sales taxes on the seller rather than the buyer. If all states followed that rule this whole problem wouldn’t exist. Also, taxes would then also be paid on sales to entities exempt form paying sales tax increasing the total amount collected.