Back to top

ETFs & Stocks to Win/Lose on SCOTUS Sales Tax Decision

Read MoreHide Full Article

The online retail stocks were hit hard on Jun 21, 2018 on the ruling of the supreme court of the United States (SCOTUS) on sales tax. The 5-4 ruling permits states to collect sales taxes from online and out-of-state retailers. The latest decision reverses a 1992 Supreme Court ruling that prohibited the practice.

Justice Anthony Kennedy noted that the reason for the upturn in the previous ruling was the radical change in online retail industry. The 1992 ruling was mainly concerned about the mail-order business worth $180 billion.

But now the online retail industry has ballooned.  "Last year, e-commerce retail sales alone were estimated at $453.5 billion,” he mentioned. This along with traditional remote sellers amounted to more than half a trillion dollars.

Below we highlight a few ETF and stock winners and losers following the Supreme tax ruling.

Brick-and Mortar Retailers: A Clear Winner

Brick-and Mortar retailers became the most-expected winners. Companies like Walmart Inc. (WMT - Free Report) (up 0.7%) and Kohl's Corporation (KSS - Free Report) (up 1.14%) thus gained on Jun 21. The broader retail ETF VanEck Vectors Retail ETF (RTH - Free Report) added about 0.24% on that day.

Online Retailers: An Obvious Loser 

Online retail ETFs like Amplify Online Retail ETF (IBUY - Free Report) (down 1.4%) and ProShares Long Online/Short Stores ETF (CLIX - Free Report) (down 2.3%) slid on Jun 21, to reflect the Supreme Court ruling.

Amazon: A Surprising Long-Term Winner

Though online retail behemoth Inc. (AMZN - Free Report) lost more than 1.1% on Jun 21, experts do not foresee the company to suffer from the ruling. This is because “Amazon already collects sales tax on the products it sells directly.” Since this makes up about half of all units sold on its site, the court ruling should not have much impact on Amazon.

However, the rest of the products are sold by third-party merchants on Amazon's marketplace and “the ruling doesn't make clear how third-party sales should be taxed,” per a law professor at the University of Arizona, as quoted on CNBC. Even Moody's analyst Charlie O'Shea believes that whether higher taxes on those smaller retailers’ goods will at all affect Amazon's overall revenues is still unclear.

Moreover, companies such as Amazon and eBay Inc. (EBAY - Free Report) (down 3.25% on Jun 21) have wide international exposure, which should cushion them from U.S. State taxes. So, investors can have faith on Amazon-heavy ETFs like Consumer Discret Sel Sect SPDR ETF (XLY - Free Report) (read: May's Retail Sales Growth Highest in 6 Months: ETFs & Stocks).

Small Online Retailers Likely to be Hard-Hit

Smaller online retailers with concentrated exposure to the U.S. market are likely to be knocked-down the most. Notably, online retailer Inc. (OSTK - Free Report) shed a solid 7.2% on Jun 21. The company generates sales mainly from the United States.

Consumers May Feel the Pinch

Overall, if taxes are hiked, companies may choose to pass that burden on to consumers. So, consumers’ shopping bills could see a jump ahead. iShares US Consumer Services ETF (IYC - Free Report) should thus be on investors’ radar.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

More from Zacks ETF News And Commentary

You May Like