In what could be a very consequential change, a variety of sources are saying that the barriers to widespread collection of state sales taxes e-commerce orders are starting to fall.
If true, the switch could have major ramifications for retail sales patterns and the logistics strategies that support them.
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 The on-line channels of traditional retailers may see the biggest gain. Most already have to charge sales tax because they have physical stores in many if not all 50 states.
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The issue of whether states should be able to collect sales tax for on-line transactions (and indeed, even catalog sales before that) has been a contentious one for nearly 15 years, with states looking for additional tax revenue and traditional "brick and mortar" retailers loudly complaining they were being put at an unfair advantage versus e-merchants that did not have to charge sales tax, which can range to almost 10% in some locales.
In 1992, the US Supreme Court ruled that companies selling direct to consumer (then, mostly catalogs) didn't have to collect sales taxes if they lacked a physical presence in the state - such as a store or distribution center - where the customer lived. The ruling, however, left open the possibility that Congress could pass legislation that such sales taxes could be levied for on-line transactions.
However, in 1998, Congress enacted the Internet Tax Freedom Act, effectively banning sales taxes on e-commerce, with some exceptions. Its purpose was to encourage and foster the growth of Internet business. The Act was extended in 2007.
But since then the issue has remained a political hot potato, with a few states forcing some e-merchants to collect sales taxes. In fact, the complexity of calculating, collecting and disbursing the taxes across thousands of state and local jurisdictions is to some e-merchants as much an issue as the tax burden itself, which after all will be paid by consumers.
Amazon.com often led the charge, and has been engaged in several high profile battles with some states over whether it should have to charge and collect the tax, in a couple of cases threatening to cancel distribution or call center operations in a state pushing it to charge the tax.
But the times are changing. First, a number of Republican governors, who in the past have often been against e-commerce taxes, are starting to change their tunes. That because most states are desperate for more revenue to run their government. In many states, overall tax revenues in 2012 are still below their peak in 2007.
For example, New Jersey Governor Chris Christie recently reached a deal with Amazon that will force it to collect sales taxes in the Garden state.
Christie recently called taxation of e-commerce sales "an important issue to all the nation's governors" and said he supported federal legislation giving all states taxing authority.
There are in fact bills in the House and Senate that would do just that.
Tennessee Senator Lamar Alexander recently said that "The handwriting is on the wall that states will collect sales taxes on on-line purchases. This is going to happen—if not this year, then definitely by next year."
In addition, Amazon itself is seen as softening its once fierce lobbying efforts against such a tax - but only at a federal level. Why? The answer is simple. As Amazon continues to roll-out an amazing number of DCs, it is establishing the required "physical presence" in a growing number of states to trigger required sales tax collection for orders shipped to consumers in those states. That number is likely to grow even more as it appears Amazon is going to build out a number of smaller DCs in major metro markets to support same-day delivery operations.
So, Amazon appears to have decided it is better to stop opposition to e-commerce sales taxes so that is does not encounter a disadvantage relative to smaller e-merchants which have a presence in only one or two states.
But that doesn't mean Amazon isn't still duking it out at a state level until federal laws are change. The e-commerce giant, for example, is embroiled in a big fight currently with the state of Florida, threatening to cancel DC projects there over sales tax issues.
Amazon had planned to "create thousands of jobs in Florida, but the state's government hasn't shown much interest," Amazon's vice president of global public policy Paul Misener said recently. "Without Florida's leadership, these thousands of jobs will be created in another state."
Logistics Ramifications
Assuming Alexander and others are correct, what are the ramifications to the supply chain? There are several.
First, as the costs for on-line purchases rise, it will return some competitive advantage for brick and mortar stores. E-commerce sales have been growing in mid-teen percentages year over year in the last several quarters, growing 17% in Q1 2012 to more than $44 billion, according to researchers at the research firm comScore. A slowdown in e-commerce growth might similarly reduce investment in more advanced e-fulfillment capabilities.
(Supply Chain Trends and Issues Article - Continued Below) |
The on-line channels of traditional retailers may see the biggest gain. Most already have to charge sales tax because they have physical stores in many if not all 50 states. Their cost disadvantage, which an executive at Lowes said can be as much as 5-10% versus many on-line merchants, would disappear. Whether these retail dot com sites will keep prices the same to increase volumes, or use the higher prices at on-line rivals as a lever to raise prices, remains to be seen, but clearly many traditional dot com channels are losing money, and this change could provide some relief.
