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U.S. states can now collect taxes on billions of dollars of eCommerce sales without a physical presence. This follows the Supreme Court of the US (SCOTUS) overruling 1992's Quill Corp v. North Dakota case in South Dakota v. Wayfair.

US Ecommerce Sales growth

Quill stated that US states could only change sales taxes on companies with a physical presence in the state. Quill determined how state taxes worked with e-commerce from the internet's initial days. This new decision means even if a company doesn't have a physical location such as a store, warehouse, or office in a state, its internet sales to that state's residents can be taxed.

This is a huge gamechanger and one that President Trump would have smiled about given his attacks earlier in the year on Amazon destroying businesses and not paying taxes.

Amazon Sold Off

Following the decision the major US indices  fell sharply lower given the leadership of tech and Amazon shares in particular. Amazon had actually hit a new all time high of $1763.10 before the SCOTUS news.  The stock collapsed to $1717.56, nearly $46 down to close bounce to close at 1,730.22 ▼ 19.86 (-1.13%).

US Total Retail and ECommerce Sales

The Decision

Quill stated that US states could only change sales taxes on companies with a physical presence in the state. Quill determined how state taxes worked with e-commerce from the internet's initial days. This new decision means even if a company doesn't have a physical location such as a store, warehouse, or office in a state, its internet sales to that state's residents can be taxed. This is a huge gamechanger and one that President Trump would have smiled about given his attacks earlier in the year on Amazon destroying businesses and not paying taxes.

The decision means billions in sales every year will now be taxed. Many retailers,including  Amazon, Apple, Walmart, and Target, were already collecting sales taxes even if they didn't have a brick-and-mortar retail space in a state. Companies such as Wayfair, Overstock, and Newegg did not collect sales tax which led to South Dakota bringing court action to collect its sales taxes.

Over 40 other states and Trump's administration asked SCOTUS to overturn Quill v. North Dakota. They had argued that a decision in a case involving mail-order catalogs was obsolete in the modern e-commerce world. 

Justice Anthony M. Kennedy wrote Thursday's majority decision where five of the nine SCOTUS judges all agreed that Quill was obsolete and that it unfairly disadvantaged brick-and-mortar stores. Indeed, it was helping to kill them in what has been termed "retail apocolypse".

Justice Kennedy wrote, "The rule produces an incentive to avoid physical presence in multiple States. Distortions caused by the desire of businesses to avoid tax collection mean that the market may currently lack storefronts, distribution points, and employment centers that otherwise would be efficient or desirable."

Even Jeff Bezos would agree with Kennedy here,

"A virtual showroom can show far more inventory, in far more detail, and with greater opportunities for consumer and seller interaction than might be possible for local stores."

Chief Justice John G. Roberts Jr. disagreed in his dissent.

He argued, "Any alteration to those rules with the potential to disrupt the development of such a critical segment of the economy should be undertaken by Congress. The court should not act on this important question of current economic policy, solely to expiate a mistake it made over 50 years ago."

This decision is a clear winner for the states increasing their revenue and  also a plus for the battle hardened brick-and-mortar stores. For consumers bargain hunting it means those cheap tax avoiding buys are over and it may spell the end for small e-commerce businesses with the costs of software changes needed to deal with 50 sets of new tax regulations. Software companies should benefit.

The indices ended the session in the red. The announcement came in a weak market environment rattled by the G7 and China tariff fallouts. The Dow is down for the 8th consecutive day, the longest losing streak lower since 1978.

Today's major US Indices

  • The S&P closed down -17.56 points or -0.63% at 2749.76
  • The Nasdaq closed down -68.56 points or -0.88% at 7712.95
  • The Dow closedcdown -196 points or -0.80% at 24461.

To be fair tech was already down with Intel down by -2.38% after $INTCEO Brian Kryzanich resigned after  news of a consensual relationship with an employee. After tech leaders Nvidia, down 1.98% and Cisco down 1.33% led the index. Interestingly the initial villian, Amazon closed relatively tame down -1.13%.

Source: SCOTUS. Census

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