For years, people have enjoyed cybershopping due to easy price comparisons and tax breaks, which shaved down prices for even greater savings. Now, the appeal of online purchases may fade just a bit — except for shoppers located in Delaware, where no sales tax exists. That doesn’t mean the likely passage of the Marketplace Fairness Act of 2013 won’t affect locals and local business, however.
The following are ways the marketplace may change with the new online sales tax laws.
1. Offline Stores in Delaware attract Former Online Customers from Surrounding States
Online stores and Delaware brick-and-mortar stores used to have something in common: they were both tax-free. However, Delaware shopkeepers operating physical sites will now be at an advantage, maintaining a tax-free status when online retailers cannot. Expect more shoppers to cross the border from surrounding states, especially those in Maryland, Pennsylvania and New Jersey who feel they’ll get a cheaper sales bill by abandoning their laptops and browsing the aisles downtown or at the local mall in Delaware towns.
2. Online Delaware Retailers Must Send Taxes to Other States
Online businesses operating in Delaware who rack up more than a million dollars in sales by serving out-of-state customers will owe sales taxes to other states. This could create complications in retailers’ accounting departments. They will have to create systems to collect and send taxes.
3. Delaware Residents Can Still Shop Tax-Free Anywhere Online
The online shopping experience for folks in Delaware won’t change. Whether they buy from Amazon, eBay or small, obscure retailers, the merchandise will remain tax free as long as your shipping address is to Delaware.
4. Delaware Will be a Desirable Location for Business Expansion
One of five states without a sales tax, Delaware has been and may remain a hot destination for businesses wanting to open a new store or warehouse. Sales to state residents would be tax-free online or offline, which could be tempting to some retailers. Delaware is small, however, and sales to out-of-state consumers would be taxed, so this may only appeal to small and medium businesses with a focus on the tri-state area.
5. Die-hard Shoppers Relocate to Delaware
Shopaholics may love living in L.A. and New York, but online shopaholics lukewarm to the new tax law may just fall in love with Delaware as a place to live. Don’t be surprised if young adults job hunting or house hunting consider the tax-free appeal of Delaware when deciding to relocate and start at new life. The ability to buy expensive furniture and electronics online and tax free from anywhere in the nation could be a huge lure.
6. Small Online Delaware Retailers May Pick Up More Business
For online businesses that sell to consumers in other states but keep their sales totals under $1 million yearly, collecting sales taxes for out-of-state customers can be avoided. Because of that, small online shops can still attract customers from all over the U.S. by touting their site as a tax-free store. This can lead to a larger clientele.
7. Large Delaware Online Retailers Must Find New Ways to Compete
Big businesses located in Delaware that operate online, taking in more than $1 million from out-of-staters will have to think of special incentives to keep those customers. Otherwise, non-Delaware consumers will have to pay both shipping costs and their state taxes, which won’t appear to be much of a deal when they get to the checkout page. This could mean a decline in business for large Delaware online retailers.
8. Delaware Could Lose its Distinct Appeal to Big Box Retailers
Delaware and other states without sales taxes have had lucrative partnerships with online giants, such as Amazon. Amazon has spend lavishly on fulfillment warehouses, bringing thousands of jobs to Delaware precisely because it could avoid collecting taxes from any customer by selling to them from a warehouse or fulfillment center in a tax-free state. If the new Marketplace Fairness Act passes, where Amazon or any retailer is located won’t matter. Only the customer’s location will dictate taxes. IF that’s the case, retailers might as well locate warehouses and jobs anywhere.
9. Delaware eBayers Will Have to Collect Taxes for out-of-state Customers
The Marketplace Fairness Act would affect more than formal businesses; it will affect people who sell goods through auction sites as well, particularly those whose annual sales are so much they surpass the million dollar mark. Yes, even eBayers will have to collect state taxes from buyers from coast to coast — but not in the state of Delaware, of course.
10. Delaware State Won’t Gain the Additional Funding Other States Will
Collectively, states with sales taxes lost more than $10 billion last year through online sales where taxes were not collected. If the online sales tax law passes, states with sales taxes will get an injection of millions and millions of dollars from online businesses that cater to their customers. That won’t include Delaware, however.
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About the Author: Brett Gold writes on legal issues in the Chicago area. Brett gives probate law and other practice area advice to those in need. He spends time with his wife and on vacations has backpacked all over the U.S.A.