'Cause I'm the taxman
Yeah, I'm the taxman.
- The Beatles
As millions of online shoppers have discovered, shopping online usually comes with a nice perk: no sales tax. But states are once again pushing Congress to close the online sales tax "loophole."
It seems that every so often Congress takes up this issue and discusses whether or not online retailers should collect sales taxes on behalf of the states. The issue gets debated, goes nowhere, and things continue as they did before.
When Congress takes up the issue again (which could be as early as this week), however, the results could be different this time.
Most states are facing huge budget deficits, due to declining tax receipts from the downturn in housing, higher unemployment and a weak economy. According to the National Conference of State Legislatures (which is drafting the proposed bill), state sales tax collections are at the lowest level in 50 years. One way to boost those state coffers and help fill some of those budget gaps is to collect sales taxes from those who shop online.
Most retailers are in favor of this bill. Local retailers are already required to collect state sales taxes on purchases. Brick-and-mortar retailers with online websites also collect state sales taxes from shoppers that live in states where the company has physical operations.
So, it's only pure-play e-commerce sites that collect no sales taxes. If those companies are required to collect state sales taxes, it could alter the landscape of e-commerce.
Online shoppers are typically looking for the best price, regardless of the website. Paying state sales tax will add 5% to 10% to the purchase price. Larger e-commerce companies like Amazon ([url=http://www.zacks.com/research/report.php?t=amzn]AMZN[/url]) and eBay ([url=http://www.zacks.com/research/report.php?t=ebay]EBAY[/url]) are big enough to find ways to offset price increases from sales tax collections. They could cut operating costs, reduce shipping charges, or discount merchandise prices. For shoppers, prices would be the same as before, even with sales tax added.
For smaller e-tailers or those that are still unprofitable like Overstock.com ([url=http://www.zacks.com/research/report.php?t=ostk]OSTK[/url]), collecting sales taxes could be disastrous. Those firms don't have the size or scale to keep prices low and collect sales tax, which would make them less competitive on pricing and less relevant in the industry.