U.S. state and local governments now have the right to claim billions of dollars of your hard-earned revenue. On June 21, 2018 the Supreme Court decided to take away a decades-old shield that exempted online retailers from collecting sales tax in states where they have no physical presence.
The exact nuts and bolts of enforcement have yet to be worked out. It may be another 60 days before details emerge on how states will amend existing laws or enact new ones, but it’s certain to change the face of eCommerce. Which begs the question – how does this impact retailers? Here’s how:
- Merchants that have already been collecting state taxes: Good news – your competitors will now have to do the same. The playing field just got leveled.
- Merchants with brick-and-mortar stores: Even better news – you’ve been collecting everywhere you had a physical presence. Your competitors that only operated virtual stores now share that same sales tax liability.
- Merchant that haven’t been collecting: Uh oh. Your expenses are about to go up.
This doesn’t mean the winning side of this decision can rest easy. In theory the price gap between online and offline merchants will narrow. But it won’t necessarily be eliminated.
For example, online merchants with bigger scale are able to absorb costs elsewhere to offer pricing that brick-and-mortar merchants can’t. Amazon may actually benefit from this ruling because it already collects tax in many states on goods it sells directly. It also has the infrastructure and capability to collect in all states. Smaller businesses may struggle to collect tax throughout the U.S. while beating Amazon on price.
Either way, it’s clear that online merchants that haven’t been collecting sales tax must now reckon with a rise in costs. That creates an opportunity for offline merchants to really push on leveraging their biggest competitive differentiator: their physical stores. Consumers love to buy online and pick up in store. Amazon doesn’t have that option.
This is also a good time for merchants to make sure they are maximizing their revenue. Ecommerce retailers lose an average of about 8% of their annual revenues to the costs of fraud, according to a study last year by Javelin Strategy & Research and Vesta Corporation.
Thanks to the ruling, eCommerce just got even more cutthroat. That means reducing that 8% may make all the difference for your bottom line. And while you’re at it, consider expanding to international markets to increase your revenue base. The Supreme Court can’t touch those.