On June 21, 2018, the US Supreme Court toppled more than 50 years of legal precedent when it decided on South Dakota v. Wayfair. The ruling allows the 45 states that impose state sales taxes to require online retailers to collect tax at checkout. As we do more and more shopping online, states are losing out on billions of sales tax that was once collected at the cash register. Of course, while states lost revenue, online shoppers benefited from lower prices.
So what’s going to change after South Dakota v. Wayfair?
This ruling doesn’t mean every online retailer will now have to charge sales tax. However, states now have the power to require most retailers to levy taxes in their online shopping carts. Sellers with $100,000 or less in sales — sales within the state in question — are exempt. That means most small businesses won’t be affected.
Some consumers may change their online shopping habits because of the new taxes. E-commerce sellers may not see much change in their business right away, because the process might take several months to implement. Within the next year, though, many online retailers will likely be required to collect and remit sales tax for states where they weren’t required to in the past.
This new ruling may start contributing to an e-commerce phenomenon known as shopping cart abandonment. An astronomical 75% of online shopping carts are abandoned, leaving a huge amount of potential sales lingering at the final stage. There are a number of reasons for this, including surprise return policies, costly shipping, and extra fees. The Baymard Institute found that 60% of shoppers abandon their cars because extra costs were too high, including shipping, fees, and taxes. Shoppers may be surprised to see sales tax on purchases they never had to pay sales tax on before, and they might just cancel the transaction as a result.
To offset this added cost, many companies want to start offering free shipping to their consumers. Free shipping is the number one amenity that customers want when they make an online purchase. E-commerce merchants can use this amenity to attract customers and build goodwill so their online retail business doesn’t see a huge drop.
Of course, a few extra dollars of sales tax likely won’t discourage most people from shopping online. Currently, US e-commerce revenue is roughly $423 billion, and it’s steadily climbing. Whether it’s full-truckload, less-than-truckload, or parcel, carriers are being forced to adjust to changes in the retail industry, too. Shipping companies are already struggling to keep up with the volume of e-commerce deliveries, and they might have to start offering faster services. This is because another amenity online retailers can offer to soften the blow of sales tax is expedited shipping. Convenience plus fast shipping can go a long way toward keeping e-commerce customers coming back for more.
Brick-and-mortar stores are thought to be dead in this online world we live it, but they aren’t. Over the past two years, the number of “__ near me” searches have actually increased by 150%. So while online shopping is certainly here to stay, so are your favorite brick and mortar stores. But, now, states won’t lose out on sales tax revenue just because residents are ordering their razors and throw pillows online.
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