How Soon Will Internet Retailers Collect Sales Tax?

According to the U.S. Commerce Department, 14% of U.S. retail sales occurred over the internet in 2017.  Consumers spent nearly $455 billion dollars buying online products, a 16% increase over 2016.  In other words, online shopping continues to grow at a healthy pace.  This is why all eyes are on a pending United States Supreme Court case, South Dakota v. Wayfair, Inc.

For those unfamiliar, South Dakota v. Wayfair, Inc. deals with internet sales taxes, or the current lack of them.  The petitioner, the state of South Dakota, is asking the Court to repeal Quill Corp vs North Dakota, a 1992 case that reaffirmed that internet retailers must have a physical presence in a state in order to collect sales and use tax from residents of that state.

As a result of the Quill decision, states continue to lose out on huge amounts of sales tax collections, and brick and mortar stores complain that they cannot compete against online retailers' pricing advantage.  Data seems to back up this last claim, as nearly two dozen national retailers, including iconic brands Toys R Us and RadioShack, filed for bankruptcy last year.  In fact, about 7,000 brick and mortar stores of all shapes and sizes closed in 2017, a new record.

Yet, on the other hand, many small brick and mortar retailers have opened up storefronts on eBay, Etsy and Amazon as a way to reach more customers.  In fact, 300,000 small and medium-sized businesses opened up shop on Amazon alone in 2017.  Minimal sales tax is collected on the goods sold through these online storefronts.  So while these smaller retailers might bemoan the fact that they have to collect sales tax on the goods they sell locally, they have also found a way to greatly expand their customer base.  And like their purely online competitors, they are not required to collect sales tax on those internet sales without a physical presence.