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.