It’s been two weeks since the Supreme Court broadened states’ ability to collect sales tax from online merchants, and the looming changes are already coming into focus.
Following the South Dakota v. Wayfair decision, some states have already publicized their tax collection plans. The rush isn’t entirely surprising. Online sales tax was easier to overlook when e-commerce was in its infancy. But its growth has become too massive to ignore now: In 2017, online shoppers spent $453.46 billion, a 16 percent increase over 2016, according to data from the Commerce Department. And prior to the ruling, states projected tax revenue loss of as much as $34 billion this year.
Now the hand-wringing has shifted to retailers, investors and finance experts, who wonder if Internet shoppers will take a dim view of paying more out of pocket.
So far, the impact hasn’t slowed down the giants. After years of fighting to keep online shopping tax-free, Amazon conceded last year: For its own merchandise, the e-commerce giant began charging sales tax in all U.S. states. In some cases, it helps third-party sellers calculate taxes.
Just how hard the third-party ecosystem on Amazon is hit by the mandatory collection of state tax remains to be seen, but at least some prices are expected to be raised to cover the increases.
Amazon and big box chains such as Walmart and Target have the expertise and the infrastructure in place to handle the regulatory challenges. But the implications for other small- and medium-size (SMB) businesses are not at all clear yet.
“The ruling itself affects South Dakota. We assume other states will be implementing similar rules, but that can take a while,” Melanie Travis, Andie Swim’s founder and chief executive officer, told WWD. “When you’re an e-commerce apparel merchant, you move really fast, and so thinking that far out is beyond the stage — what are we going to do tomorrow, what are we going to do next week, what are we doing next season?”
For now, Travis and the other retail entrepreneurs in her circle aren’t stressing about it, she said, just taking a wait-and-see approach.
As it turns out, the wait won’t be very long.
Some states have already put a plan in motion, such as Louisiana, where new rules for online sales tax will take effect on Jan. 1. Connecticut will begin collecting Dec. 1, while Alabama, North Dakota and Wisconsin aim to start collecting on Oct. 1. Others say they’d implement the rules as early as this month.
The swift moves surprised Travis, but didn’t unnerve her, largely because Andie Swim has help from BigCommerce. The online retail platform powers storefronts for small outfits to larger brands — including boutique business Scout & Molly’s, lingerie company Natori, plus well-known names in technology, food, automotive and others.
Russell Klein, BigCommerce’s chief development officer, noticed an uptick in concerned calls from its merchants. But worries appear to have waned, and Klein considers the matter “nothing more than a minor speed bump.” BigCommerce already offers free sales tax calculations for its retailers, “so they’re already protected from any and all changes like this,” he said.
The platform integrates with partners such as TaxJar and Avalara, which offer sales tax preparation software. Notably, the latter’s stock jumped 32 percent right after the Supreme Court decision and closed down 3.4 percent to $47.44 Friday, still up 5.4 percent from right before the ruling.
If the regulatory headaches don’t overly impact the large e-commerce companies or SMB retailers backed by platforms like BigCommerce and Shopify Plus, then the most vulnerable may be those that fall in between. Think of indie sellers, or the one- or two-person Etsy shop. On the handmade goods platform, merchants are responsible for researching the varying rules for tax reporting and collection, though it does offer a tool where they can specify each state’s tax rate.
Independent operators with big enough businesses will have to understand the rules of the road in many different tax jurisdictions.
Scott Peterson, Avalara’s vice president of government relations and U.S. tax policy, has some advice for challenged retailers: Take a deep breath and ask your accountant to break down what the laws mean to your business.
“It would be a good idea to create a list of all the states where the business is selling, and the volume of sales into each state, and figure out the threshold rules for each state where you have sales,” he said, adding that Kentucky, Hawaii and Vermont announced that their economic nexus laws would go into effect as of July 1. The rules in the three states would apply an “economic nexus” (or sales) threshold of $100,000, or 200 individual sales, and sellers who exceeded them will be required to register a sales tax license, he said. The same applies in Wisconsin. But in Alabama, the threshold is $250,000.
“Obviously, retailers will need to have a plan to understand not just where they are but where they sell,” Peterson said.
After many years of relatively little change to the fundamental business, the retail sector has had to adapt to a fast-morphing landscape over the past decade. Success increasingly hinges on things like innovation strategies and “omnichannel” retail. The latter, somewhat hackneyed term describes the effort to create cohesive, consistent experiences across digital and physical environments.
In the context of omnichannel’s growing importance, it’s impossible to ignore that with the tax changes, there’s now less separating online and brick-and-mortar retail. South Dakota v. Wayfair effectively took away one of the distinguishing characteristics — and, some say, advantages — of e-commerce. The question now is whether this new reality will hurt web sales.
Andie Swim, for one, isn’t worried.
“E-commerce or brick-and-mortar retail — it’s all becoming the same,” said Travis. “I think that the larger goal for a brand like Andie Swim is to just serve customers where they are.
“It’s not like a bottom-of-the barrel pricing war,” she said. “We’re selling our brand, and it’s aspirational. A couple of dollars isn’t going to make a difference.”