Easing concerns that certain tax collection practices of e-commerce firms are causing huge losses to the government, the Supreme Court today issued an order allowing states to require online retailers to collect sales tax even if they do not have physical presence there.
Shares of Amazon (AMZN), which has been in President Donald Trump’s firing line for the company’s allegedly flawed tax collection practice, lost nearly 2% following the court ruling, which had a negative impact on several other e-commerce stocks also.
The landmark order overturns a decades-old ruling that stated retailers could collect tax on their sales only in states where they have physical presence. Apparently, lawmakers found the old rule – which was formulated at a time when e-commerce was not prevalent – irrelevant in the present retail environment.
The tax collection model followed by online retailers has been a point of contention ever since Trump accused Amazon of trying to monopolize the sector by eating into the market share of traditional retailers.
The court issued an order allowing states to require online retailers to collect sales tax from customers
While issuing the order, the court said the growth of e-commerce added to the woes of states already facing revenue shortfall for being unable to collect their taxes. The court made the observation while considering a case between the state of South Dakota and online retail firm Wayfair. Currently, Alaska, Delaware, Montana, New Hampshire and Oregon are the US states that do not impose local sales tax.
The order was welcomed by both state legislators and retail store operators, who had alleged that the ‘tax exemption’ enjoyed by online retailers gave them a significant advantage over their traditional counterparts.
A few months ago, Trump unleashed a scathing attack on Amazon founder Jeff Bezos and Washington Post, the media business owned by Bezos, alleging that non-collection of sales tax by the company had caused huge losses to states where the merchandise is sold.
The other e-commerce stocks that suffered losses are eBay (EBAY), Overstock (OSTK) and Wayfair (W). Meanwhile, shares of traditional retailers Walmart (WMT), Target (TGT) and Best Buy (BBY) gained in the latter part of today’s regular session.