Online Sales Tax Era Begins Without a Bang

Collection of online sales tax, once seen by analysts as a potential death knell for some e-tailers and a drag on e-commerce growth in general, has quietly begun. Several major sites already have started levying the extra fees on purchases.

The move by such large multichannel retailers as Wal-Mart, Toys “R” Us and Target to start voluntarily collecting sales tax stems from an agreement inked last year among retailers and a group of 38 U.S. states and the District of Columbia.

Under terms of that agreement, the states involved agreed not to pursue taxes that they argue should have been previously collected, and retailers agreed to voluntarily start collecting sales tax on a more even basis.

Blurring Lines

Some retailers said the move was necessary because of the blurring lines between online and offline retail. Several chains, including Borders, and Target, allow items bought online to be returned or even picked up at a retail store.

For example, Toys “R” Us spokesperson Rebecca Caruso said applying sales tax equally across all channels will simplify the company’s efforts to more closely align those sales channels. “Our customers want to jump between channels, and this makes it a lot easier for us to allow them to do that,” Caruso told the E-Commerce Times.

Although the U.S. Congress has repeatedly extended a moratorium prohibiting a nationwide sales tax on online purchases, many analysts have long believed states would make a concerted push in the face of sharp budget shortfalls. Numerous traditional retailers also are in favor of enforcement of existing laws, which already require such retailers to collect sales tax if they have a physical presence in the home state of the consumer making a purchase.

Tax Trap

Although some analysts believe e-commerce should not be adversely affected by the introduction of sales tax, even though it can vary both between and within states, others still see sales tax as a potential hurdle to additional e-commerce adoption. However, even pessimists say the move toward taxation is not likely to completely snuff out the online channel’s continued steady growth.

“One of the problems with sales tax has always been that it’s a hidden cost,” Forrester Research analyst Christopher Kelley told the E-Commerce Times. “It’s a surprise shoppers don’t get until checkout.”

More uniform enforcement of sales tax requirements would help address that mystery component, Kelley added.

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