Government vs. Amazon: What the Sales Tax Battle Could Mean for Ecommerce


If you have been watching the news lately, you are probably aware of the battle between online stores and taxes. The government wants to extend sales tax to ecommerce websites just like yours, which will have a larger effect on your business than you might initially think. As you might expect, large internet retailers such as Amazon are leading the charge in fighting this new tax.

The Background

Ecommerce websites have managed to get out of sales tax due to a loophole in these laws. Companies are only required to collect sales tax for transactions involving the jurisdiction in which they are physically present. Many ecommerce website do not have a formal facility in any state and are thus exempt from collecting sales tax. This makes shopping on the internet cheaper for people who live in areas with high sales tax, driving these customers to retailers like yours.

The Supreme Court weighed in on the issue in 1992, ruling that a mail-order company only had to collect sales tax from customers in states where the business had a physical presence. Although ecommerce in its current form was unheard of at the time, this ruling has been interpreted as applying to ecommerce websites as well. Although the Supreme Court found in favor of the mail order business in question, they noted that it gave the business a huge advantage over traditional storefronts.

The Pros

Having a uniform sales tax law has certain advantages, although they probably will not make life any easier for the average ecommerce website owner. The first and most obvious is that it takes away the sales tax ‘penalty’ that you would encounter if you decided to rent facilities or warehousing for your business. If everyone is required to pay sales tax, your facility or lack thereof will be of no concern, which can remove a possible barrier to expansion. This law would also help Main Street businesses in your community by removing a disadvantage that they suffer. You will benefit from a better local economy and more stable small businesses in your area.

The Cons

Obviously the advantage to brick and mortar businesses will present a disadvantage to ecommerce websites. It will be difficult to add programs that collect sales tax to existing ecommerce software, and owners will also have to go through the additional step of remitting sales tax to the government. It means more paperwork and a lot of change.

Another big con is one we mentioned above: one of the most compelling advantages to shopping on the internet will be removed. This could mean less traffic and fewer customers for businesses that are already struggling to compete with Big Box stores present in every town.

One positive thing about this issue is that it shows how powerful ecommerce websites like yours really are. Although you are probably not targeting Main Street businesses, they see you as a very real threat. Ecommerce is the shopping method of the future, and no law is going to change that.