Online shoppers will have to collectively fork over another $13 billion to $20 billion a year in the wake of a Supreme Court decision Thursday that will allow states to collect sales taxes from most Internet purchases for the first time, experts estimate.
But the extra revenue could allow states and cities to either spend more on services or use the levies to upgrade roads and schools or lower other taxes, such as those on property and income taxes.
“Once we get past the short-term hurt to consumer spending power, we’re likely to see those amounts returned to us indirectly as states spend surpluses either through reduced taxes, infrastructure spending or the expansion of business incentive programs,” says Brian Kirkell, a principal at tax audit and consulting firm RSM.
The taxation sticker shock may not be as severe as some might fear. Large players such as Walmart and Amazon already were charging sales taxes for online purchases. Shoppers purchasing items from smaller online retailers were still supposed to pay the taxes on those items on their end-of-year state returns.
Few did, tax experts say, with individual consumers reporting less than 2 percent of such purchases on their tax forms.
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“People aren’t paying the taxes they’re supposed to,” says Max Behlke, budget and tax director for the National Conference of State Legislatures. “Now we have a mechanism … to require out of state retailers to collect those taxes that are already owed.”
Both the conference and Global Data, a retail consultancy, put the annual added tax take for state and local governments at roughly $13 billion to $20 billion.
The windfall could become a top revenue source for states. The additional revenue can help pay for infrastructure and schools while also providing tax relief to residents.
“A lot of states are going to use it to reduce taxes,” Behlke says. Wisconsin, for instance, has a law that says it will reduce personal income-tax requirements based on how much the state receives in online sales tax revenue.
Consumers who enjoy browsing smaller, more niche websites might lose some of their favorites if those businesses are unable to implement the systems or navigate the myriad tax codes in place across the U.S., some internet experts say.
Online purchases will likely get more expensive.
“Small web businesses will be hardest hit, particularly those with only a single location, because they can’t afford the overhead to comply with thousands of different tax rules across the country,” Chris Cox, outside counsel for NetChoice, a trade group that represents eCommerce businesses and consumers, said in a statement. “Consumers will quickly feel the negative effects as those businesses dry up or are forced into the arms of internet giants.”
There’s also a chance that states will now tack a sales tax on digital services that currently do not carry them, such as the streamed music service Spotify, Kirkell says.
But online shoppers probably won’t dramatically shift their shopping patterns just because some online purchases become more costly. Deals will still be available, retail watchers say, and convenience matters to many consumers as much as price. .
“I think there will be some dilution of online growth as a result of this, but it will be very small and almost imperceptible,” says Neil Saunders, managing director of retail consultancy GlobalData. “Many retailers, like Amazon and Walmart, already do charge online sales tax. Moreover, consumers use online for a whole variety of reasons, of which price is but one.”
For traditional store-based retailers trying to compete against online sellers, the ruling is a boon.
“From the perspective of leveling the playing field of Main Street and E-street, it (the ruling) certainly works,” Kirkell said. And for “state and local governments, there will be a long-term increase in revenue that will probably (be) used in a manner that benefits everybody.”
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