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Cyber Monday, Post-Wayfair Edition

By: Joseph Bishop-Henchman

This year, “Cyber Monday” signifies more than just a chance to get the best post-Black Friday deals. It also kicks off the first holiday online shopping season since the U.S. Supreme Court sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. ruling in South Dakota v. WayfairSouth Dakota v. Wayfair was a 2018 U.S. Supreme Court decision eliminating the requirement that a seller have physical presence in the taxing state to be able to collect and remit sales taxes to that state. It expanded states’ abilities to collect sales taxes from e-commerce and other remote transactions. . It’s a big step but also doesn’t represent a huge sea change, given the evolution of online commerce in recent years.

Previous Supreme Court precedents stipulated that states couldn’t require retailers to collect sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es unless the business had a physical presence—usually a building or employee—in the state. Following years of debate and state tax laws that pushed the limits on how to view physical presence, South Dakota v. Wayfair gave the Court an opportunity to revisit that standard. The Court tossed aside the physical presence standard and ruled for South Dakota, though it gave states some guidelines on how to protect interstate commerce.

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So, what’s next? In the fallout from Wayfair, some states have already moved forward on mandating all sellers above a certain size collect their sales tax. Not all them have made the simplifications the Court suggested in the Wayfair ruling, but states have generally refrained from taking any actions that would noticeably disturb e-commerce.

On the surface, many online shoppers may see little or no difference from the past year or two. Given its rapid expansion, Amazon had long since agreed to collect taxes on direct sales it makes in every state. Even before that, the physical presence rule meant that large retailers such as Walmart, Target, and Best Buy already collected taxes from online sales. As for online marketplaces such as eBay, Etsy, and Amazon (through its third-party seller platform), Cyber Monday shoppers still may not see any post-Wayfair changes. With a few exceptions, most states haven’t set ground rules for the tax treatment of marketplace sales, so many consumers on those platforms still may not see sales tax included (but yes, they’ll owe use taxes).

That being said, Overstock, Wayfair, and other mid-to-large Amazon competitors will be expected to collect sales taxes in several states before the holiday shopping season has concluded. For those businesses, compliance may be doable, but it won’t be cheap. Without further simplification and uniformity, the Government Accountability Office has estimated that complying with the myriad state and local sales tax rules could cost businesses hundreds of millions of dollars annually. If we leave Cyber Monday with any thoughts on tax policy, it should be that much-needed simplification to state sales tax regimes would save everyone money in the long term.