Tuesday, July 01, 2008

Time to pay the tax man...

The days of the tax-free retailing online in the US are dwindling. July 1, 2008 marks the start of Destination Oriented tax collection in the state of Washington. This change, means that the old rules of "nexus" no longer apply in terms of whether or not a customer pays taxes on their purchase. You now pay taxes based on the delivery location, not the billing address.

Granted, the implementation in WA is voluntary right now during a trial period but... over 1000 retailers have signed up for it. And, as the sales tax revenue begins to increase based on these purchases rolls in... and with the current downward economic trend negatively affecting local tax revenues, experts are predicting that in fact customers should continue to expect this collection trend to be come mandatory sooner rather than later. I tend to agree.

What does this mean? Well, it is the beginning of the removal of the pure-play "advantage" of avoiding sales tax collection. Given that many pure-plays were "cheaper" from a price standpoint based on their "tax-free" play... many are going to have to compete on their core price of the merchandise, and not on a tax advantage.

It will be interesting to see how this plays out... I imagine that the smaller operations will be hit harder not only from a development perspective (load the local tax tables for EVERY zipcode in the US now) but also from a competitive advantage standpoint. Now the logistics and buying capabilities of a Walmart vs. those of Wally's Widgets are going to make it really tough for Wally to compete.