Dive Brief:

• Several states are looking to collect sales taxes from smaller e-commerce sellers, including third-party sellers on marketplaces like Amazon and eBay, which have largely escaped the years-long skirmish over the issue, The Wall Street Journal reports. 

• New York and Wyoming have moved to extract the taxes from smaller sellers on marketplaces, and at least six other states are considering such measures, according a report from the National Association of State Budget Officers cited by the Journal.

• Earlier this week, Amazon said it will begin collecting state taxes on April 1 from all states that have implemented such levies. 

Dive Insight:

For years, retailers were dismayed by Amazon’s tax-free advantage and long argued for a more fair playing field when it comes to online sales-tax collection. Efforts to require online retailers to collect state sales taxes have not been able to pass the U.S. House of Representatives over several sessions, largely because of a general anti-tax sentiment there. Because of a series of court rulings, the only retailers obligated to collect state taxes on internet orders are those with a physical presence in those states, a responsibility stemming from a 1992 Supreme Court decision known as “Quill.”

In the face of inaction in Congress and little recourse in the courts, states have become increasingly frustrated with the declines in sales tax collection that have occurred with the rise of e-commerce.

Although the online sales tax issue is known as the “Amazon tax” and is seen as a one reason that Amazon was able to disrupt the retail industry, Amazon long ago threw in the towel on the issue, letting Congress know that it’s fine with the situation either way. That resignation reached its peak with its announcement that it will collect sales tax for all states that have one. That may be because Amazon has established more fulfillment centers nationwide, making it subject to sales tax collection in those states.

Like state “tax holidays,” the “Amazon tax” is not a huge driver or deterrent of overall sales, but a study from Ohio State University last year showed that it has significant effects on some households, especially lower-income ones, and on bigger-ticket purchases. Best Buy, which collects tax in all instances, picked up some of Amazon’s business once tax was collected at Amazon, according to Ohio State’s research, suggesting that consumers may value the option of having physical stores nearby when they make a bigger-ticket purchase. 

An increase in the collection of sales tax is poised to further erode one of e-commerce’s major benefits to consumers. Collection from smaller retailers could rile marketplaces and introduce the need for marketplaces to include pricing algorithms that take into account the state sales tax structures, which can also differ according to category; some states don’t tax apparel, for example. In addition to robbing e-commerce sellers of a distinct pricing advantage, the practice is destined to complicate returns, which are often made directly to sellers and not via the marketplaces they sell on.