WASHINGTON: Sales Tax: $0.
Online shoppers have gotten used to seeing that line on checkout screens before they click “purchase.” But a case before the Supreme Court could change that.
At issue is a rule stemming from two, decades-old Supreme Court cases: If a business is shipping to a state where it doesn’t have an office, warehouse or other physical presence, it doesn’t have to collect the state’s sales tax.
That means large retailers such as Apple, Macy’s, Target and Walmart, which have brick-and-mortar stores nationwide, generally collect sales tax from customers who buy from them online. But other online sellers, from 1-800 Contacts to home goods site Wayfair, can often sidestep charging the tax.
More than 40 states are asking the Supreme Court to reconsider that rule in a case being argued Tuesday. They say they’re losing out on “billions of dollars in tax revenue each year, requiring cuts to critical government programs” and that their losses compound as online shopping grows. But small businesses that sell online say the complexity and expense of collecting taxes nationwide could drive them out of business.
Large retailers want all businesses to “be playing by the same set of rules,” said Deborah White, the president of the litigation arm of the Retail Industry Leaders Association, which represents more than 70 of America’s largest retailers.
For years, the issue of whether out-of-state sellers should collect sales tax had to do mostly with one company: Amazon.com. The online giant is said to account for more than 40 percent of US online retail sales. But as Amazon has grown, dotting the country with warehouses, it has had to charge sales tax in more and more places.
President Donald Trump has slammed the company, accusing it of paying “little or no taxes” to state and local governments. But since 2017, Amazon has been collecting sales tax in every state that charges it. Third-party sellers that use Amazon to sell products make their own tax collection decisions, however.
The case now before the Supreme Court could affect those third-party Amazon sellers and many other sellers that don’t collect taxes in all states — sellers such as jewelry website Blue Nile, pet products site Chewy.com, clothing retailer L.L. Bean, electronics retailer Newegg and Internet retailer Overstock.com. Sellers on eBay and Etsy, which provide platforms for smaller sellers, also don’t collect sales tax nationwide.
States generally require consumers who weren’t charged sales tax on a purchase to pay it themselves, often through self-reporting on their income tax returns. But states have found that only about 1 percent to 2 percent actually pay.
States would capture more of that tax if out-of-state sellers had to collect it, and states say software has made sales tax collection simple.
Out-of-state sellers disagree, calling it costly and extraordinarily complex, with tax rates and rules that vary not only by state but also by city and county. For example, in Illinois, Snickers are taxed at a higher rate than Twix because foods containing flour don’t count as candy. Sellers say free or inexpensive software isn’t accurate, more sophisticated software is expensive and that collecting tax nationwide would also subject them to potentially costly audits.
“For small businesses on tight margins, these costs are going to be fatal in many cases,” said Andy Pincus, who filed a brief on behalf of eBay and small businesses that use its platform.
The case now before the Supreme Court involves South Dakota, which has no income tax and relies heavily on sales tax for revenue. South Dakota’s governor has said the state loses out on an estimated $50 million a year in sales tax that doesn’t get collected by out-of-state sellers.
In 2016 the state passed a law requiring those sellers to collect taxes on sales into the state, a law challenging the Supreme Court precedents. The state, conceding it could win only if the Supreme Court reverses course, has lost in lower courts.
South Dakota says the high court’s previous decisions don’t reflect today’s world. The court first adopted its physical presence rule on sales tax collection in a 1967 case dealing with a catalog retailer. At the time, the court was concerned in part about the burden collecting sales tax would place on the catalog company. The court reaffirmed that ruling in 1992.
It’s unclear how the justices might align on the question this time. But three justices — Neil Gorsuch, Clarence Thomas and Anthony Kennedy — have suggested a willingness to rethink those decisions. Kennedy has written that the 1992 case was “questionable even when decided” and “now harms states to a degree far greater than could have been anticipated earlier.”
“Although online businesses may not have a physical presence in some states, the Web has, in many ways, brought the average American closer to most major retailers,” he wrote in suggesting the days of inconsistent sales tax collection may be numbered. “A connection to a shopper’s favorite store is a click away regardless of how close or far the nearest storefront.”
Question of US sales tax on online purchases goes to high court
Question of US sales tax on online purchases goes to high court
WASHINGTON: Sales Tax: $0.
Market unsure over Shire's backing of $64 billion Takeda bid
But shares in Takeda extended recent losses, tumbling 7 percent as investors fretted over its ability to buy a company twice its size, raising doubts about whether Shire shareholders will accept a bid that is 56 percent in new Takeda shares.
The stock slide — 18 percent since the news of a possible bid broke — makes the cash-and-share deal less appealing to Shire shareholders, some of whom may be reluctant or unable to hold Takeda shares.
“While this offer represents a solid improvement over Takeda’s third bid (38 percent cash), we still wonder if it is enough to satisfy Shire shareholders,” said Jefferies analyst David Steinberg.
Shire shares slipped 0.8 percent to 39 pounds by 0850 GMT, well below Takeda’s 49 pounds offer, signalling skepticism about the deal as Takeda’s falling stock price erodes the bid’s $64 billion headline value.
Without a deal, Shire shares could fall back to mid-March levels of 30-32 pounds, pressuring management to find other ways to realize value. Prior to Takeda’s approach, Shire was already considering divestments and a split in its operations.
It is now four weeks since Takeda first revealed it was considering a bid and the absence of firm interest from rivals means investors see only a low chance of an interloper emerging.
The latest development, first reported by Reuters, comes after London-listed Shire rejected four previous offers from Takeda.
The fifth offer is worth 49.01 pounds per share, comprised of 27.26 pounds per share in new Takeda shares and 21.75 pounds per share in cash. That represents a 4.3 percent premium to Takeda’s fourth proposal on April 20 and an 11.4 percent premium to its first approach on March 29.
Shire, a member of Britain’s benchmark FTSE 100 stock index, said its board agreed to extend a Wednesday regulatory deadline to May 8 so Takeda can conduct more due diligence and firm up its bid. Shire added the deadline may be extended further if needed.
Any deal is subject to the resolution of several issues, including completion of due diligence by Shire on Takeda, the Dublin-based company said.
A deal would significantly boost Takeda’s position in gastrointestinal disorders, neuroscience, and rare diseases, including a blockbuster haemophilia franchise.
If successful, it would be the largest overseas acquisition by a Japanese company and propel Takeda, led by Frenchman Christophe Weber, into the top ranks of global drugmakers.
Weber, who became Takeda’s first non-Japanese CEO in 2015, has said publicly it was looking for acquisitions to reduce its exposure to a mature Japanese pharmaceutical market.
The combined company would have its primary listing in Tokyo and also offer American Depository Receipts — a move that would give Shire investors an opportunity to cash out more easily.
But the transaction would be a huge financial stretch, and Takeda investors have been skeptical about the merits of a Shire deal, given the size of the potential purchase and concerns that a large share issue will be needed to fund it.
Moody’s said the deal would pile up debt and hit Takeda’s credit ratings. “This huge acquisition bodes a spike in leverage that could result in a multi-notch downgrade,” said analyst Yukiko Asanuma.
Ambitious cost cutting is also seen as necessary to make the deal pay, and the uncertainties facing an enlarged group would spell a big change in the investment case for holding Takeda.
“Takeda’s shares have been valued for their stability and relatively high dividend,” said Daiwa Securities analyst Kazuaki Hashiguchi, adding this made them attractive even to investors without specialist knowledge of the drug sector.
Takeda, now worth $33 billion by market value, had 466.5 billion yen ($4.3 billion) in cash and short-term investments as of the end of December. It said yesterday it intended to maintain its dividend policy and investment-grade credit rating following the deal.
Dealmaking has surged in the drug industry this year as large players look to improve their pipelines. A Takeda-Shire transaction would be by far the biggest.
Shire has long been seen as a likely takeover target.
Botox-maker Allergan Plc said last week it was considering making a rival offer, only to scrap it hours later due to pushback from shareholders. Shire was also nearly bought by US drugmaker AbbVie Inc. in 2014, until US tax rule changes caused the deal to fall apart.
Shire traces its roots back to 1986, when it began as a seller of calcium supplements to treat osteoporosis, operating from an office above a shop in Hampshire, southern England. Since then, it has grown rapidly through acquisitions to generate revenues of about $15.2 billion last year.
But it has been under pressure in the past 12 months due to greater competition from generic drugs and debt from its $32 billion acquisition of Baxalta in 2016, a widely criticized deal.
It announced last week a sale of its oncology business to unlisted French drugmaker Servier for $2.4 billion.