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Online Retail Gets Hit Hard By Supreme Court Tax Ruling

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The dynamic of online retail has been turned upside down thanks to a Supreme Court ruling made earlier today. From now on, states can now compel online retailers to collect taxes from their consumers even if they don’t have a physical presence in the state.

Over the years, only brick-and-mortar stores were required to collect taxes on states’ behalf. On the other hand, online retailers were not required of this action, until now. The consumers who would online shop were solely responsible for paying the necessary state taxes, which never really happened. This has caused states to lose millions of dollars over the years and gave online retail an advantage over their brick-and-mortar competitors.

According to CNN, the Supreme Court reversed the 1992 ruling that allowed states to impose taxes on only brick-and-mortar businesses within the state. The court believed that this specific law allowed businesses to avoid a physical presence in states. Ultimately, the justices agreed that the current laws were outdated. This led to a 5-4 decision, which has left online retailers in the tech and consumer services industry experiencing a downfall in their share prices.

Shortly after the decision was made, shares of Amazon (AMZN - Free Report) fell 1.2%, and other online retailers like eBay (EBAY - Free Report) , Etsy (ETSY - Free Report) and Wayfair (W - Free Report) were down 1.8%, 4.7%, and 2.7%, respectively, as well. Since Amazon is already a large enough online retailer, it has been collecting taxes from its consumers before this ruling. However, it could potentially harm smaller businesses.

Seeing as prices are already falling, we can expect online retail to become more expensive. This could potentially lead to fewer customers using online retail and in return, lead them back to shopping locally for stuff like furniture, electronics and jewelry. According to Sucharita Kodali, a retail analyst with Forrester, she called the ruling “bad news” for online retail. The Internet has become the go-to place for many consumers, whether it is for basic necessities or even grocery shopping, people like to do it remotely.

According to a study done by Pew Research Center in 2016, 8/10 Americans are online shoppers. When Pew Research Center first came about in 2000, only 22% of Americans used online retail. In 16 years, the Internet and e-commerce has become a staple in an average American’s shopping life.

Not only does this ruling greatly affect online retailers, but brick-and-mortars are celebrating. According to cnet, the National Retail Federation called the decision a major victory, which they have been awaiting for the past two decades. Matthew Shay, the CEO and Federation’s president, said that this ruling makes way for a fair and level playing field between all retailers, whether it is online or in-store. 

As of now, online retailers have been pushed into a sink hole, whereas brick-and-mortar shops are way above the ground. With this recent ruling, the future of online retail is uncertain, and has divided the retail industry, both online and physically.

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