Last week, the Supreme Court ruled that states can require retailers to collect sales tax from online shoppers, even if the company doesn’t have a physical presence in the state, reversing a 1992 decision.
Some retailers celebrated the decision, but huge e-commerce businesses like Amazon and Etsy saw their stocks take hits on the day of the ruling.
What was never fully addressed, however, was how the decision could impact the promotional products industry.
According to Bob Herzog, CEO of Corporate Imaging Concepts (CIC), the decision likely won’t impact sales, but does present some complications.
“From an operations perspective, the challenge will be figuring out how to systematize the requirements of each state,” he added. “We could end up with 50 slightly different interpretations of the Supreme Court ruling that would require us to program our system to automatically handle all of these different scenarios so as not to slow down the purchase process. Companies without sophisticated [enterprise resource planning] systems will be at a disadvantage having to do this manually.”
That last part is key for smaller distributor companies, and it’s something we alluded to in past coverage of the online sales tax ruling. The biggest impact for distributors will likely be on the accounting side—a headache, maybe, but not a significant stumbling block for future sales.
For now, it appears the biggest thing to look out for is how each state follows through with the court decision.
“This will definitely increase costs for the end-consumer based on the tax rate imposed in their respective tate,” Herzog said. “In addition, I am also curious about the supplier/distributor transaction, and how that will be interpreted by each state. There is a possibility of double taxation if the supplier pays a tax for the sale to the distributor, and then the distributor is also charged a tax for the sale of the same product to the end-consumer.”
The promo businesses most likely to feel the effects of the new online sales tax are those with large e-commerce operations. On the retail side, Amazon—a massive corporation with virtually limitless resources—was prepared for the change, already collecting sales tax in most states. Online promo distributors, even the large ones, likely weren’t as prepared, but should have time to implement changes if necessary.
Sources from within the promo industry we reached for comment said they were mostly waiting for more information on how states will enforce the ruling before they can discern the full extent of how it will impact their business. But, for the most part, our industry sampling didn’t seem too concerned.
There are, however, a few other factors to consider. The promotional products supply chain is a bit different than retail, and there are a number of exemptions and sales tax rules specific to wholesale or promotional products that vary from state to state. (Quality Logo Products has a good rundown of these on its blog.) These further muddy the waters, but mostly on the accounting side.
“From a sales perspective, I don’t think this ruling will have any impact,” Herzog said. “Consumers in every state will still purchase promotional items as they always have and adapt to the tax implications of their individual state.”
