Supreme Court’s Online Sales Tax Ruling Could Have Big Impact on Small Business

When the Supreme Court recently heard arguments on overturning the 1992 rule stating that online retailers must only collect sales tax in states where they have a physical presence, one stated goal was protecting small businesses.

But in an article in The Hill, Michigan Ross Professors Jun Li and Andrew Wu argue that overturning the rule — called the Quill exemption — could actually hurt those companies and benefit large retail chains.

“This is because many internet retailers are platforms for other, third-party retailers,” they write. “On the other hand, Amazon offers a platform (and often logistics support with its Fulfilled by Amazon service) for many small, third-party retailers. Sites like eBay, Etsy, etc. are devoted exclusively to these retailers. Revoking the Quill exemption will impact these retailers the most.”

However, Li and Wu continue, one way states could act to protect small businesses is by collecting sales tax on international companies selling into the U.S.

The authors conclude, “more economic cost-and-benefit analysis and quantitative arguments are needed before making the most informed decision.”

Jun Li is the Michael R. and Mary Kay Hallman fellow and assistant professor of technology and operations at the University of Michigan's Ross School of Business. Andrew Wu is an assistant professor of technology and operations and an assistant professor of finance at Michigan Ross.

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