Supreme Court Tax Ruling Won't Curb Amazon Dominance

A U.S. Supreme Court ruling that overturned a tax law that enabled internet retailers to avoid charging sales tax should not chip away at Inc.’s  (AMZN) dominance in the e-commerce market.

While Amazon’s stock was ticking lower in trading Friday, Recode reported the high court’s ruling won’t have as big an impact on the e-commerce giant as some investors may fear. The 5-4 decision handed down this week sided with the state of South Dakota, ruling that it can collect sales tax even if the seller resides outside of the state—if it delivers more than $100,000 worth of goods or services in the state or had 200 or more separate transactions to deliver goods and services within the state. That will prevent Amazon from taking advantage of a previous loophole that had enabled states to charge sales tax on customers only if the seller has a physical presence in the state, whether that be a physical store, an office or a warehouse. The Seattle-based online retailing giant has benefited for years from not having to charge a sales tax to many customers. (See also: Has Amazon Stock Topped Out?)

Amazon Should Weather Sales Tax Storm

Although it's seen as a blow to online retailers, for Amazon, the impact should be muted largely because the company has become much more than selling products on the cheap. Thanks to its Prime subscription service, customers get free streaming of music and videos, free two-day shipping and a host of other perks that they will still come back for, even if they now have to pay sales tax. Not to mention, notes Recode, Amazon already collects sales tax in states around the U.S. when it sells directly to customers. These sales, known as first-party sales, represent a little under half of all the purchases on the Amazon platform, reported Recode. When Amazon opens a fulfillment center in a state, it starts collecting sales tax, noted the report.

Third Party Merchants May Take a Hit

For the third-party merchants that sell via Amazon, which makes up more than 50% of the items sold on the platform, they could be negatively impacted. Amazon has been collecting and remitting sales tax on third-party orders that are shipped to Washington and Pennsylvania because the states passed laws that require website operators like Amazon to collect tax for the merchants that sell on the platform. As more states adopt similar laws, the states in which Amazon collects sales tax will increase, and that is something Recode noted Amazon has been preparing for. Some of the third-party merchants, however, could lose sales as a result. (See also: America Has Become the United States of Amazon.)

On top of that Amazon has been spending years and tons of money to stand out from the e-commerce pack, and it has paid off. Most consumers view Amazon as a convenient way to buy a slew of different things. That reputation won’t go away because of sales tax.

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