Impact of Tax on the Market Essay

An argument presented by the South Dakota Attorney General Marty Jackley noted that states have experienced losses of revenue as a result of uncollected sales taxes by online retailers as consumers do not pay the taxes at their wish. Since online businesses do not have a physical presence in a state, the 1992 ruling considered the internet a tax-free zone, spurring the rise of internet shopping. The justices would overturn the ruling on the grounds of its obsolete nature in the modern e-commerce era but be worried about the effect on the smallest online retailers. The overturning of the ruling, known as Quill v. North Dakota, brought an argument as states were not permitted to collect sales taxes from organizations without a connection to the state. By the end of the debate, the chief justice alongside other justices upheld the precedent, leaving the current system in place. The new law in South Dakota would exempt out-of-state retailers transacting no more than 200 transactions or $100,000 annually from collecting sales taxes (Liptak, 2018). This would get the court to reconsider the Quill decision as it made no practical sense, a move that would require entrepreneurs to produce software to satisfy the market needs. However, several other justices pushed back on the argument, voting it unfair to traditional businesses that physically collect tax (Liptak, 2018). Some states, if allowed to ditch the physical presence, would be more aggressive as the tax law is a prospective application to states. Stewart, a lawyer arguing in support of South Dakota, states that the states would "adopt regimes that are less hospitable to retailers unless they were stopped from doing that by Congress" (Liptak, 2018). Isaacson similarly argued on the basis of burdens on small online merchants stating that the best solution would only be produced by the Congress and not the Supreme Court.

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Forcing retailers who ship goods to states that have no physical presence in the areas to collect sales tax from their clients is impossible and if tried, customer rapport would be negatively affected. In doing this, there would be an increase in the prices of goods hence, various sellers including out-of-state sellers and local ones would be equalized. Similarly, seller equalization would also be enforced through tax collection obligation. As also noted by George Isaacson who is a lawyer representing online sellers Wayfair, a total of at least 12,000 local tax jurisdictions would be imposed to online retailers as soon as the Supreme Court decides to side with the states. In the future, consumers using online shopping platforms would also do more than 10% of their shopping online when the decision to forfeit the ruling is upheld. According to many online retailers, a seller's physical presence does not include affiliated websites. However, many states recognize affiliated websites as physical identities hence, try as much as they can to alert consumers of the unpaid sales taxes. Addition of local showroom, warehouses or due to coverage by the law leads most sellers to cooperate and pay sales taxes. Much of these taxes, even though not enough, are used for education, healthcare, and infrastructure. Quill creates an unleveled playing field that gives a price advantage to out-of-state sellers. However, in regards to the rules of demand and supply, the number of goods to be available for the users will be dependent upon the demand, which will lower due to the urge to account for sales taxes when they buy the goods. Accounting sales tax is commonly done on the goods provided by sellers, a large disadvantage to the consumer due to the increased prices of the required goods.

Large retailers, led by Amazon, and which resort to collect taxes cannot be affected by the overruling of the long-standing Supreme Court precedent as compared to small online retailers. Amazon Inc. which is a large online retailer charges its sales tax in states that impose the same even though third-party merchants own at least half of the goods whereas some of their consumers do not collect taxes voluntarily. In doing so, it is not directly involved in sales tax collection, even though can account for the same even in places where they do not have a physical presence. There have been critics of Amazon's tax and shipping practices including President Donald Trump. Even as Jeff Bezos, the founder of Amazon, remains the owner of Washington Post and reports the case of tax collection on his website, Trump is displeased with the acts. However the critics say, the attorney and various justices argue that as far as the digital era covers most of the online businesses, the Quill decision will remain invalid. Sales taxes may be seen to reduce both demand and supply for many organizations including online retailers. As a result, they may also drive the market equilibrium to prices that are higher without the imposed tax and lower quantities than without the tax. Taxing amazon's products may lead to a larger burden as the supply will be inelastic whereas the demand elastic hence, a dead-weight loss. Most of the customers for the retailer will not accept higher prices of goods if they have alternatives to buy with a new tax. However, the impact on customers cannot be gauged easily since some shoppers may remain unaffected due to the brand loyalty of Amazon.

References

Liptak, A. (2018, April 17). Supreme Court Divided on Sales Taxes for Online Purchases. Retrieved April 27, 2018, from https://www.nytimes.com/2018/04/17/business/justices-divided-on-sales-taxes-for-online-purchases.html