A Supreme Court Ruling Could Spell Trouble for Online Retailers

Online retailers got some bad news this week as the U.S. Supreme Court overturned a ruling from the 90s that allowed e-commerce sites to avoid collecting sales tax unless they were physically present in a state. The development is a significant one for Amazon.com, Inc. (NASDAQ:AMZN) and other online retailers that have been able to avoid charging sales taxes, thereby making their prices cheaper compared to brick and mortar stores that didn’t have the luxury of being able to avoid the tax man.

However, Amazon does charges taxes in some cases, such as when the item comes out of its own inventory and when it involves a state that collects sales tax. Many other retailers don’t pay at all, and that’s going to be a big change to e-commerce as consumers will have to pay more for the same purchase.

The big concern for some online stores is whether some states could try to collect retroactively, which in many states is legal to do so. Whether that happens or not remains to be seen, but that could have a devastating impact on many companies.

Amazon’s stock dipped 1% on the news, which is a drop in the bucket for its share price, which trades at over $1,700. While sales tax is hardly going to be the undoing of the tech giant, it’s a good reminder for investors to have another look at its share price.

With per-share earnings of less than $8, the stock trades at more than 200 times its profits and it may only be a matter of time before we see a correction come its way.