WASHINGTON — With the holiday shopping season here, could a recent Supreme Court ruling end up costing you more when you shop online?
Experts say, not quite.
- In June, Supreme Court ruled online vendors must collect sales tax
- Before the ruling, you only did if you had physical location in the state
- Not every state has made changes yet
- PREVIOUS STORY: Supreme Court says States can Requires Sales Tax from Online Retailers
Back in June, the nation’s highest bench ruled that online vendors can be forced to collect the sales tax. It was a decision praised by small business groups.
“It’s a leveling of the playing field, we believe, because online retailers had a 7 percent roughly advantage over your brick and mortar store that was in your community,” said Andy Ellen with the North Carolina Retail Merchants Association.
The court reversed a decades-old ruling, which said that if an outlet did not have a physical presence in the state where they were shipping purchased goods, they did not have to collect tax on the sale.
Did the Supreme Court create a new tax?
The short answer is no.
Technically, consumers have had to pay sales tax on their online purchases all along. Rather than the retailer asking for it, however, the consumer had to claim it them themselves on their tax forms as a “use tax.” That is something few people ever did.
The court is merely changing the way in which that tax is collected.
What does the ruling mean for me?
It depends on where you live and where you shop online. For most folks, experts say they may not notice a thing.
“Most online sales were already taxed prior to the court’s decision,” said Richard Auxier, a research associate at a D.C.-based think tank called the Tax Policy Center.
Auxier says Amazon, Home Depot, Walmart, and other big retailers that make up a big chunk of online sales are largely ahead of the game and are already collecting the tax, in some cases voluntarily. In some cases that is because they have footprints in the state, while in other cases it is simply because they have the technology to be able to calculate the tax on a local level.
“Amazon is of course the giant of online sales, they account for nearly half of all transactions, and they’ve been taxing all purchases since 2017,” Auxier said.
Meanwhile, under the court ruling, Auxier says many smaller outlets and boutique shops will continue to not have to collect the tax. They generally do not bring in enough out-of-state revenue to be forced to collect.
The question is really midsized retailers, that might do a couple hundred thousand dollars in states where they have no infrastructure. Do they have to collect? It is on that front that many states are starting to step up to the plate.
What is my state’s policy?
Kentucky was one of the first to respond to the ruling. Starting this past October, they began requiring companies with 200 transactions or $100,000 in sales to collect the tax.
“Because South Dakota laws passed muster with the Supreme Court, they modeled it after that and put in similar rules, like making it as simple as possible,” said Auxier.
Other states are also stepping up to the plate. At the beginning of November, North Carolina started to require retailers to collect based on the same guidelines.
“If the retailer has less than 100,000 in sales, or fewer than 200 transactions, they don’t have to collect. But most retailers will probably hit that and have to collect,” said Joe Bishop-Henchman, Executive Vice President of the Tax Foundation, another D.C.-based think tank.
California, Texas, New York, and Florida all have so far not set any policies. Bishop-Henchman says that is in part because the sales tax is very complicated in each state with multiple jurisdictions. Texas alone has 1,594 different sales tax jurisdictions.
It is worth noting, however, that Amazon is still voluntarily collecting the sales tax in those states, along with other major online retail outlets.
In Ohio, the proposed online tax rules are tied up in court.
“They have pre-existing law that says if you run a website that puts cookies on people’s computers, those little tracking things, then you have to collect,” Bishop-Henchman said. “And there’s an argument whether that violates the constitution's due process clause because that’s essentially every website on the planet.”
For a look at other states, check out the Tax Foundation’s website.
Will consumer habits change?
When it is all said and done, analysts say any uptick you may see on your receipt is not likely to change your consumer habits.
“People don’t necessary buy things online because of the taxes, they do it for simplicity or because they have something that they want to specifically purchase or because the store is only in another state so you can’t drive to it,” Auxier said.