Jet.com's Sales Tax Advantage in Jeopardy
Jet.com pitches itself as a lower-priced alternative to Amazon.com, partly by not tacking on sales taxes in most states. But tax experts say Jet’s sale to retail giant Wal-Mart Stores Inc. could jeopardize that price advantage by forcing it to collect taxes nationwide. A 1992 Supreme Court ruling allows retailers to avoid collecting sales taxes in states where they don’t have a physical presence like a warehouse, a local store or office. With far more distribution centers nationwide, Seattle-based Amazon collects sales taxes in 28 states covering most of the U.S. population. New York-based Jet collects taxes in just seven states, avoiding big ones like California and Texas. It isn’t clear how Wal-Mart will handle tax collections on Jet.com. Tax experts say it will depend on how ownership and operational integrations are structured.
Total Retail's Take: This is just one of the many details that will have to be worked out as Wal-Mart works to finalize its acquisition of Jet.com. This one may have a bigger impact on consumers than most, however. With Wal-Mart having a physical presence in every state, and thus required to collect sales tax in those states, how will that impact Jet, which has always promoted itself as a cheaper alternative to other online retailers, notably Amazon.com? Consider this example: On Wednesday, both Amazon and Jet each listed a Le Creuset French oven for $319.95. But an Amazon shopper in Illinois, where the retailer has a physical presence, would have to pay sales taxes of $32.79, unlike the Jet shopper. As you can see, adding sales tax can be the difference between winning or losing a purchase.
Joe Keenan is the executive editor of Total Retail. Joe has more than 10 years experience covering the retail industry, and enjoys profiling innovative companies and people in the space.