Tuesday, June 26, 2018

Online Sales Tax and Vertical Integration

Last week, the US Supreme Court reversed earlier decisions on the collection of sales tax by online retailers. Previously, states could not tax a company that had no physical presence in the state. Now, states can collect sales tax on retail items sent to residents of the state.

Large online retailers had a presence in almost all states and so collected state sales taxes from all customers. Mom & Pop venders may have sold across state lines but usually only collected from local residents. Mid-sized online retailers, however, had to weigh the option of expanding into a state with the 6-8% higher costs that their customers would have to pay. Avoiding those costs, likely affected some facilities purchase decisions. Now that this  tax can no longer be avoided, I expect more of the mid-sized firms to vertically integrate into states where they had been hiring third-party vendors.

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