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Money News

Like to Buy Online? Get Ready for Higher Prices

June 21, 2018

A recent Supreme Court ruling could make buying sneakers, dog food, and electronic gadgets online more expensive.

2 min read

The sneakers, dog food, and electronic products you buy online are about to get more expensive.

On Thursday, the Supreme Court ruled in favor of states, saying they may now collect sales tax for online sales.

Why is this a big deal?

For decades, e-commerce companies that do not have a physical presence in states where they sell products have not had to pay state sales taxes. And some states have argued that the exemption for online businesses has deprived them of valuable tax revenue.

Over the years, traditional retailers have also said the exception for online retailers has put them at a disadvantage because they must pay state sales taxes.

The ruling is likely to affect a broad range of online retailers that do business in states where they may not have a physical presence, such as Amazon, eBay, Etsy, Wayfair, and many others.

Traditional retailers are suffering, with many prominent names going out of business. Online retail sales have grown four times faster than so-called bricks and mortar retailers, and are driving half of all growth in the retail industry, according to industry reports.

How will this affect me?

Prices for the things you like to buy online could go up, as online sellers collect sales tax. The tax will be added to the purchase price of your items.

Why don’t online retailers have to pay taxes?

A number of legal decisions, stretching back to the 1960s, protect sellers that don’t have a physical presence in states where they sell.

In 1992, the Supreme Court decided a case that exempted online retailers from state taxes if they did not have a significant presence in a particular state. In 1998 it passed something called the Internet Tax Freedom Act, which prevented random taxes on Internet access and commerce. Lawmakers hoped the legislation would help the (then young) Internet industry grow.

The current high court case stems from a 2016 suit launched by South Dakota against online sellers, requiring them to pay sales tax.

What else could happen?

States could get more revenue: They could gain as much as $34 billion in lost sales tax revenue, according to reports.

E-commerce companies could suffer: While many large retailers such as Amazon already pay sales tax on most things they sell directly, many others do not. Amazon also hosts a network of millions of smaller sellers who don’t currently pay state sales taxes. These independent sellers, who are responsible for about $200 billion of revenue, could now be on the hook, according to reports.

Key terms:

Sales tax: A tax paid by retailers, based on a percentage of the total sale to a consumer. Rates in the U.S. generally range from 3% to 7%. Five states have not sales tax at all.

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By Jeremy Quittner
Jeremy Quittner is the senior writer for Stash.

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