The online sales tax bill has been revived again in the U.S. Congress. Two years ago, the influx of Tea Party members on Capitol Hill pushed any idea of raising taxes off the table.
However, members of both parties are now supporting legislation, The Marketplace Fairness Act, which would require e-commerce businesses to collect sales taxes on behalf of out-of-state governments, potentially totaling billions of dollars and effectively raising the cost of online purchases for many of their customers. The bill requires states to simplify their sales tax structures in their state if they wish to enforce these collections.
The issue is not new. In 1967 and re-affirmed in 1992, the Supreme Court ruled that the variety of state tax laws made it too hard for e-commerce retailers to collect sales taxes from out-of-state customers and remit to their governments. As it now stands, customers are required to submit those sales taxes on their annual tax returns but rarely do. Retailers with a physical presence, or “nexus”, in a state, were required to collect the sales tax from local customers, including through their online channels.
Is Congress more willing now to enable states to enforce collections out-of-state and open up this tax source? Appears so. In addition to traditional retailers, a key supporter is Amazon, as they move from a limited state presence model with central warehousing (and limited requirement to collect sales taxes) to more local presence with same-day deliveries. eBay, in representing its base of small, limited presence eTailers, is on the other side.
What does it mean for both bricks-and-clicks and online-only retailers if this becomes a reality?
It means that the urgency to implement an OmniCommerce business model that brings digital and physical commerce together for a seamless and satisfying customer experience, accelerates for all:
- If the Marketplace Fairness Act passes, the tax disincentive for eTailers wanting a local physical presence is removed (ironically, removing a barrier for them to “showroom”!).
- Traditional retailers will shift toward digital assets as their competitiveness online increases.
- The industry will consolidate as online-only and traditional leaders seize market share in the converged market.
The inflection point for commerce has already arrived, with or without this tax bill. But the winners and losers of the OmniCommerce race have not been decided. But we know how to characterize them:
The losers? Channel-centric operators selling commodity products who continue to operate in silos.
The winners? Agile companies providing value and a seamless brand experience to customers.