{"id":139293,"date":"2018-07-09T09:39:06","date_gmt":"2018-07-09T13:39:06","guid":{"rendered":"https:\/\/today.uconn.edu\/?p=139293"},"modified":"2018-07-09T09:37:34","modified_gmt":"2018-07-09T13:37:34","slug":"keep-shopping-wayfair-ruling-wont-hurt-online-sales","status":"publish","type":"post","link":"https:\/\/today.uconn.edu\/2018\/07\/keep-shopping-wayfair-ruling-wont-hurt-online-sales\/","title":{"rendered":"Keep Shopping: Why the Wayfair Ruling Won\u2019t Hurt Online Sales"},"content":{"rendered":"

This interview was\u00a0originally published<\/a> on the Knowledge@Wharton radio show on Sirius\/XM Channel 111. The channel is based out of The Wharton School at the University of Pennsylvania. Listen there or on podbean.com<\/a>.<\/em><\/p>\n

In a move that promises to put billions of dollars back into state coffers, the U.S. Supreme Court ruled last month that online retailers must collect sales taxes even in states where they have no physical presence. The decision in South Dakota v. Wayfair Inc.<\/em><\/a> reverses a 1992 ruling that banned states from forcing e-commerce sites to collect taxes unless the business had a brick-and-mortar establishment within the state.<\/p>\n

In the 5-4 opinion, Justice Anthony Kennedy wrote that the previous decision cost states about $33 billion in lost revenue. While Amazon and other online retailers have been voluntarily charging sales taxes for years, the court\u2019s decision is a game-changer for retailers both online and offline. Physical stores for years have decried the competitive advantage given to online sites that don\u2019t have to collect sales taxes. In a tweet, President Donald Trump praised the change as a victory for consumers and retailers.<\/p>\n

The Knowledge@Wharton radio show, which airs on Wharton Business Radio on SiriusXM channel 111<\/a>, asked several experts, including one from UConn Law, to analyze the decision and what it means for online shopping.<\/p>\n

Katja Seim, business economics and public policy professor at Wharton; Mark Cohen, director of retail studies at Columbia Business School and former CEO of Sears Canada; and Richard Pomp, law professor at the University of Connecticut, discussed the case.<\/p>\n

The following are key points from the conversation.<\/p>\n

The Court\u2019s Ruling Was \u2018Inevitable\u2019<\/strong><\/p>\n

All three experts said they were not surprised by the Supreme Court\u2019s ruling because the online sales tax issue had been bubbling up for years and finally came to a head with the Wayfair case. For states, the collection of sales taxes \u2013 whether online or offline \u2013 is a matter of fairness, they said.<\/p>\n

\u201cOnce the Supreme Court agreed to hear the case, it was probably predictable that the Court was going to overturn the physical presence rule,\u201d Pomp said. \u201cUsually, when the Supreme Court decides to hear a case, it is to overturn lower court cases or its own precedent. So the smart money was betting on this result in Wayfair.\u201d<\/p>\n

Cohen agreed, saying the physical presence rule has become moot, as e-commerce has grown massively in the last two decades. The only surprise to him was how the court split, with Chief Justice John Roberts opining that the dispute was legislative and should have been sorted out by Congress.<\/p>\n

\u201cThis really was, in all respects, an inevitability,\u201d Cohen said. \u201cI doubt this Congress could ever tackle an issue like this, as they have been unable to tackle virtually any kind of an issue lately.\u201d<\/p>\n

Seim added, \u201cI wasn\u2019t sure whether that was a legal matter versus policy matter to be resolved in Congress. [As for] the decision itself, I think it\u2019s unclear how big the impact will be, but the fairness aspect to it seems reasonably clear to me.\u201d<\/p>\n

Online Sales Won\u2019t See a Slump<\/strong><\/p>\n

The Wayfair decision is unlikely to affect online sales because consumers care about convenience far more than they worry about paying a few dollars more in taxes, the professors said.<\/p>\n

\u201cIf you\u2019re a macroeconomist, you would have to say, \u2018People will buy less merchandise.\u2019 But from a realistic point of view, I don\u2019t think this is going to be noticeable or make any meaningful difference in the performance of the business at large,\u201d Cohen said.<\/p>\n

Pomp noted that stocks for Wayfair, Etsy, Overstock, and other online marketplaces immediately dropped after the ruling was announced. Then the stocks bounced right back. That quick recovery indicates a certain level of confidence in the consistency of consumer behavior.<\/p>\n

\u201cMy students shop out of convenience,\u201d Pomp said, using his law students as an example. \u201cThey\u2019re busy, especially when they become young associates having to bill 2,000 hours a year. It is convenience. Now, they may look for the lowest price, of course, but they\u2019re not going into brick-and-mortar. They\u2019re all shopping on the internet, sometimes at work, much to the consternation of their employers.\u201d<\/p>\n

Smaller Sellers Will Bear the Biggest Burden<\/strong><\/p>\n

While the court\u2019s decision will have little impact on shoppers, it does create some challenges for smaller online vendors that will have to figure out how to calculate, collect, and remit sales taxes. The professors said that niche could be filled by tech companies offering analytics and other kinds of assistance to smaller retailers needing to make structural changes to their web platforms.<\/p>\n

The ruling also creates some potential administrative headaches for governments. It\u2019s not clear from the opinion whether localities that levy sales taxes can also capture revenue from online sales, or how they would go about doing so.<\/p>\n

Amid all the confusion is another looming issue: tariffs and a potential trade war<\/a>. \u201cI don\u2019t think this is going to change the direction of the tides with respect to the performance of the retail business,\u201d Cohen said. \u201cOvershadowing that is the specter of this trade war that could emerge, and the issue of the imposition of tariffs. I think that may very well take a front seat to this issue in the next six to 12 months.\u201d<\/p>\n

Amazon Will Remain Unscathed and Unfazed<\/strong><\/p>\n

Amazon won\u2019t even blink at the court\u2019s decision, because the online powerhouse has long collected sales taxes from its customers and has the structure in place to continue doing so. However, many of its third-party vendors that do not charge sales taxes will have to make some adjustments.<\/p>\n

Still, the experts said, there won\u2019t be a shopping slowdown on Amazon.<\/p>\n

\u201cAbout 50 percent of transactions on Amazon are through third-party sellers, so that\u2019s actually a pretty big share,\u201d Seim said. \u201cThey may have to report basically price increases, so there may be a response to them. But I want to go back to the point that when you buy on Amazon, price is not the only thing you are shopping [for]. I think consumers are relatively inelastic, especially on that particular site. So, it\u2019s unclear to me that the impact will be as significant.\u201d<\/p>\n

Cohen said the strength of Amazon is its lack of cyclical sales, which is a pricing scheme that has gotten brick-and-mortar stores in trouble. Those stores have trained their customers to wait for sales before buying. Cohen calls that \u201chigh\/low madness.\u201d<\/p>\n

The online shopper\u2019s \u201cfocus has shifted to shipping costs, both inbound and return shipping, and shipping policies or return policies,\u201d he said. \u201cThe focus of 10 and 15 years ago, which was ruthlessly based upon price, has now moved away from just that. There are some voices out there that suggest that this is going to impact business. I don\u2019t think so.\u201d<\/p>\n

Pomp rejects the idea that the ruling will create new barriers to entry for smaller vendors, especially those joining Amazon. The e-commerce giant will figure out ways to help them, he said.<\/p>\n

\u201cI think what we will see is that Amazon will start collecting, on behalf of the third-party vendors, the sales tax, and impose a commission for doing so, so that this is really going to create another profit center for Amazon,\u201d Pomp said. \u201cThat\u2019s what is most likely to happen.\u201d<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

UConn’s Richard Pomp, Wharton’s Katja Seim, and Columbia’s Mark Cohen discuss the Wayfair sales tax ruling on online sales, a move that promises to put billions of dollars back into state coffers.<\/p>\n","protected":false},"author":76,"featured_media":139352,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_crdt_document":"","wds_primary_category":0,"wds_primary_series":0,"wds_primary_attribution":0,"footnotes":""},"categories":[2141,1857,92],"tags":[],"magazine-issues":[],"coauthors":[175],"class_list":["post-139293","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-podcast","category-law","category-uconn-hartford"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"publishpress_future_action":{"enabled":false,"date":"2026-06-01 01:59:15","action":"change-status","newStatus":"draft","terms":[],"taxonomy":"category","extraData":[]},"publishpress_future_workflow_manual_trigger":{"enabledWorkflows":[]},"_links":{"self":[{"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/posts\/139293","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/users\/76"}],"replies":[{"embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/comments?post=139293"}],"version-history":[{"count":15,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/posts\/139293\/revisions"}],"predecessor-version":[{"id":139430,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/posts\/139293\/revisions\/139430"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/media\/139352"}],"wp:attachment":[{"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/media?parent=139293"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/categories?post=139293"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/tags?post=139293"},{"taxonomy":"magazine-issue","embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/magazine-issues?post=139293"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/today.uconn.edu\/wp-rest\/wp\/v2\/coauthors?post=139293"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}