Will The Supreme Court’s Online Sales Tax Hurt Small Business More Than Amazon?

On Tuesday, the United States Supreme Court reached a 5-4 verdict which overruled the 1992 legal precedent of Quill v. North Dakota, a case which dictated that companies were exempt from sales taxes so long as there was no physical presence within the states themselves.

According to a new report from The New York Times, this ruling was only intended to address mail-order companies prior to the establishment of Amazon, Etsy, eBay, or any other big-time website that came about during the online shopping boom. Now under this new ruling in South Dakota v. Wayfair, state officials are within their rights to impose a sales tax on products that are shipped within their jurisdiction, citing that the Quill decision was “flawed” and that the repeal “is necessary to ensure that artificial competitive advantages are not created by this Court’s precedents.”

Soon-to-be-retired Justice Anthony Kennedy wrote the opinion statement, joined by others from Justice Clarence Thomas and Justice Neil Gorsuch, who claim “modern e-commerce does not align” with the physical operation demands of the previous 1992 decision. This isn’t just a signature “fuck you” victory against the likes of Amazon — the symbols of corporate America — but a new burden of problems for small online businesses now stripped of a tenable advantage by multi-state tax collectors.

On the one hand, progressive activists have a solid argument to crackdown on government-enabled advantages of online giants. It’s been reported on TrigTent that Amazon’s track record on taxes is sketchy, to say the least. Sure, the company just loves to mention they’ll pay their fair share, following 45 state laws requiring online sales taxes, while at the same time remaining conveniently quiet on accusations of paying zero in federal taxes and conducting a significant majority of their sales from their Amazon Marketplace through third-party transactions, a completely legal way the company avoids direct sales taxes while other companies take the burden at a much lower rate.

With the company boasting $1.9 billion in profits since 2017, it’s understandable that America — surrounded by debts and deficits thanks to two full-scale wars in the middle east and near financial collapses — sees the need for government to sustain the problems of administrations past. According to new statistics from The US Government Accountability Office, this ruling could generate an addition $13 billion in annual tax revenue.

On the other, Amazon’s competitors in Etsy and eBay each raised concerns about the decision from the perspective of small business, calling on Congressional lawmakers to focus on a “fair” tax code across the board. “While today’s decision is not the one for which we advocated, the Supreme Court did acknowledge the important difference between big internet retailers and the creative entrepreneurs on our platform,” Etsy CEO Josh Silverman said in his public statement. “[There are] significant complexities in the thousands of state and local sales tax laws… We believe there is now a call to action for Congress to create a simple, fair federal solution for micro-businesses.”

These sentiments were echoed by eBay officials. “As expressed in both the Supreme Court’s decision and throughout oral arguments, the operations of small businesses are different than large retailers, and state tax actions targeting them raise additional legal questions that are not addressed by this decision,” eBay wrote in their own statement, according to The Verge. “Now is the time for Congress to step in and provide clear tax rules, with a strong small business exemption, to help small businesses take advantage of the Internet to grow and create local jobs.”

Opposition to South Dakota’s case, including Wayfair, the small online business and defendant, claim that brick-and-mortar and online retailers already have sales taxes on 80 percent of all their products, giving a statement to The Verge earlier this week that they’ve “long supported a legislative solution that would establish a level playing field”.

South Dakota, however, decided their citizens shouldn’t have to pay an income tax, meaning sales are fundamental to ensuring the function of state and local governments. This comes at a time when Amazon’s success leaves small retailers with little advantage given 50 percent of the companies products are sold through this third-party loophole. Whether Congressional policy will work towards closure is too early to say at this point.

With this unaddressed, larger companies will continue to run roughshod over smaller entities who will now have to invest time, money and manpower into tax attorneys to collect tax where companies aren’t even located. We’re talking mom and pop shops requiring Amazon level infrastructure come tax time. Either Congress acts or the only true victim of this decision could be the forgotten American President Trump once swore “would never be forgotten again.”

Related News