Internet Sales Tax Will Have Ripple Effect on Supply Chains
- August 8th, 2012
- By: Loraine Lawson
Since 1998, Internet retailers have enjoyed a Congressionally-approved tax haven from state sales tax. But experts believe that’s about to change, and if it does, say its impact will create a ripple effect on all retail supply chains.
There are several indicators why we may soon see state sales tax on all e-commerce transactions. First, many states are struggling with budget crisis, and allowing states to tax all Internet sales would add revenue. This fiscal reality caused many Republican governors to withdraw their opposition to online taxes.
Another major sign: Amazon is now paying sales tax in many states where it had previously balked at the mere suggestion. Up until recently, Amazon was so opposed to paying state sales tax, it literally closed down its Texas distribution center in Texas rather than pay the $269 million tax bill, according to Logistics Viewpoints.
It also funded many of the fights against sales tax, including a campaign against a California referendum on taxing online shopping.
While Amazon isn’t exactly embracing state sales tax — it’s still fighting a sales tax in Florida — it’s now collecting taxes in six states, including California, where just last year it fought a state referendum on the issue.
Recent reports theorize Amazon is paying sales tax in preparation for same-day delivery.
The sales tax will create a ripply effect in supply chains, and may require changes in logistic provider documents, according to B2B blogger and supply chain management veteran Navdeep Sidhu.
Some retailers have already anticipated the shift and already started charging sales tax in the states where they have offices or distribution centers, Sidhu added. Others already charge sales tax in certain states, such as Washington.
It’s possible state taxes on Internet sales could shift the balance to favor brick-and-mortar stores, Supply Chain Digest reports. That would result in a slow-down in investments for more advanced e-fulfillment capabilities, such as supporting next day or same day delivery.
A less obvious side-effect: It could lead to higher prices for online buyers of MRO and other online B2B purchases, according to the article.
Meanwhile, traditional retailers may benefit the most, since most already charge sales tax online. Allowing states to charge tax on all Internet sales would eliminate their current price disadvantage, which can be as much as 5-10 percent more than Internet-based retailers, according to the article.
The real losers, though, may be the small- and mid-sized e-commerce merchants, who will then have to collect and process the sales tax.