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In One Chart - June 21, 2018

In One Chart: Amazon Footprint Irrelevant – Will Revenue Flatten?

This morning the U.S. Supreme Court handed down a decision that will allow state and local governments to collect taxes on sales made online, regardless of the e-tailers’ physical presence.

Amazon (AMZN) and other major online sellers like Wayfair (W), eBay (EBAY), and Overstock.com (OSTK) are not excited by the news. One of the primary advantages of their business models, no sales tax in states in which they do not have a physical presence, is going away. It stands to reason that consumers in states where Amazon has no footprint will buy less once their purchases are subject to sales tax; this is likely to put downward pressure on e-tailers’ revenue.

The chart below shows quarter-over-quarter percent change of major online sellers’ revenue. Wall Street expects these trends to flatten, and that expectation has been reflected in share price dips today.

This decision overrules the 1992 verdict in Quill Corp. v. North Dakota, which determined that buyers’ state of residence may only collect sales tax from online purchases when the seller has operations, or a “footprint”, in the buyers’ state.

The decision is justified by the fact that e-commerce is a much different game than it was in 1992. Smaller, brick-and-mortar retailers are reveling in the decision, claiming it rectifies an unfair advantage Amazon and large e-tailers have long had over them. However, fledgling online businesses without a physical location in any state will feel the sting of online sales tax just like the Amazons and Overstocks of the world.

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