Being able to purchase items with the click of a mouse – in the comfort of your own home instead of a crowded store – is a convenience that attracts millions of consumers every year.
Additionally, one of the most appealing benefits to shopping online is avoiding that pesky sales tax.
With sites like Amazon already offering lower prices than their brick-and-mortar competitors, it seems counterintuitive for anyone to waste time – and money – shopping the “old fashioned” way.
And in some states, online holiday shoppers can sweeten those savings by not paying sales tax, which they’d otherwise be forced to pay if they shopped at a retailer with a physical storefront in their state.
This may be good news for shoppers, but it’s bad news for states, which rely on revenue from sales taxes to help fund basic services and initiatives, such as public safety, education, and recreation.
Worsening matters, store owners reportedly spend a fortune on rent and staffing only to have customers order stuff online.
But relief just might be on the way. Recently, the Supreme Court moved to close that loophole, ruling that internet retailers can be required to collect sales taxes even in states where they have no physical presence.
“Whether an in-state shop, an out-of-state shop, everybody is treated to the same tax collection obligation,” explained Justice Ruth Bader Ginsburg, an apparent supporter of allowing states to collect more taxes.
The South Dakota law was written to get the court to re-examine its 1992 ruling that Internet retailers could be required to collect sales taxes only in states where they had a “physical presence,” such as a store or distribution center.
Earlier this year, New York Gov. Andrew Cuomo called for requiring so-called Internet marketplaces — a group that includes eBay, Etsy and the giant Amazon marketplace, where shoppers by goods not directly sold by Amazon — to collect state and local sales tax. Similar proposals are afloat in at least two other, albeit smaller, states as well: New Mexico and Rhode Island.
If successful, experts say, the moves could make online shopping more expensive for millions of Americans and less profitable for many small and midsize online merchants. That’s because these efforts — if written into law — could quickly catch on with the other 45 states with sales taxes on the books.
“If it’s a success in one state, others will almost certainly take it up,” says Max Behlke, director of budget and tax at the National Conference of State Legislatures in Washington.
Of course, no one wants to pay more for items online. (In New York, the typical sales tax rate is 8.49 percent, according to the Tax Foundation; in New Mexico its 7.55 percent, and Rhode Island charges 7 percent.) And the tech industry predicts that these effective price hikes could stymie internet entrepreneurs.
At issue is a rule stemming from two, decades-old Supreme Court cases: If a business is shipping to a state where it doesn’t have an office, warehouse or other physical presence, it doesn’t have to collect the state’s sales tax.
That means companies such as Apple, Macy’s, Target and Walmart, which have brick-and-mortar stores nationwide, generally collect sales tax from customers who buy from them online. But other online sellers can often sidestep charging the tax.
Large retailers want all businesses to “be playing by the same set of rules,” said Deborah White, the president of the litigation arm of the Retail Industry Leaders Association, which represents more than 70 of America’s largest retailers.
In April, more than 40 states asked the Supreme Court to reconsider that rule. They say they’re losing out on “billions of dollars” in tax revenue each year, requiring cuts to critical government programs and that their losses increase as online shopping grows. But small businesses that sell online say the complexity and expense of collecting taxes nationwide could drive them out of business.