A U.S. Supreme Court decision that reversed a tax statute that allowed online sellers to avoid collecting sales tax should not diminish Amazon.com Inc.’s (AMZN) e-commerce market dominance.
While Amazon’s stock was trading down on Friday, Recode stated that the high court’s decision would not have as much of an effect on the e-commerce giant as some investors may worry. The state of South Dakota won a 5-4 judgment this week, declaring that it may collect sales tax even if the seller lives outside the state if it provides more than $100,000 in goods or services in the state or has 200 or more individual transactions to supply goods and services inside the state. This would prohibit Amazon from using an earlier loophole that allowed states to impose sales tax on consumers only if the seller had a physical presence in the state, whether that be a physical shop, an office, or a warehouse. For years, the Seattle-based internet retailer has profited from not having to collect sales tax to many consumers. (See also: Has Amazon’s Stock Peaked?)
Amazon Should Weather Sales Tax Storm
Although it is considered as a blow to online merchants, the effect on Amazon should be minimal since the firm has evolved into much more than just selling low-cost items. Customers who subscribe to Amazon Prime enjoy free music and video streaming, free two-day delivery, and a slew of other amenities that keep them coming back, even if they now have to pay sales tax. Not to mention that Amazon currently collects sales tax in jurisdictions throughout the United States when it sells directly to consumers, according to Recode. According to Recode, these first-party sales account for little under half of all Amazon platform transactions. According to the article, when Amazon builds a fulfillment facility in a state, it begins collecting sales tax.
Third Party Merchants May Take aHit
Third-party merchants that sell on Amazon, who account for more than half of all things sold on the marketplace, may suffer as a result. Amazon has started collecting and remitting sales tax on third-party items sent to Washington and Pennsylvania because the states approved legislation requiring website operators, such as Amazon, to collect tax for merchants that sell on the platform. As additional states pass similar legislation, the number of states where Amazon collects sales tax will grow, something Amazon has been planning for, according to Recode. However, some third-party merchants may lose sales as a consequence. (See also: America Has Become the Amazonian United States.)
Furthermore, Amazon has spent years and a lot of money to differentiate itself from the rest of the e-commerce pack, and it has paid off. Most customers see Amazon as a handy method to acquire a variety of items. Sales tax will not change that reputation.
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