Shares in UK-based fashion etailers ASOS and Boohoo took a hit yesterday after the US Supreme Court ruled to lift a restriction to allow states to collect sales tax from online retailers.
Previously etailers were only obliged to add sales tax in states where they had a physical presence but now tax will be applied to all orders after the Supreme Court voted to overturn a 1992 ruling.
ASOS, whose shares dropped by -5.6% to £62.34 yesterday following the ruling on Thursday, had applied sales tax in Atlanta (where it is building a large distribution hub), New York and South Dakota, but not in California where it generates much of its US revenue and which has one of the highest rates of sales tax in the US at 8.25%.
In 2017 ASOS generated £261.6m in sales in the US, which equated to around 13% of total revenue. Boohoo generated around £93m, or 16%, of its revenue from the US last year and saw its shares drop by -2.92% to 199.8p on the back of the news.
Shares in large US etailers were also adversely affected by the decision with Amazon and Ebay also taking a hit. Analysts estimate that the decision will allow the states to collect between $8bn and $23bn more per year in sales tax collectively.
The rate of sales tax varies from state to state in the US and can be anything between less than 1% to more that 10%. Unlike VAT in the UK, the sales tax is applied at retail level. Since January 2017 five states (Alaska, Delaware, Montana, New Hampshire and Oregon) do not apply a state-wide sales tax, but in some states, such as California, individual counties and cities can apply additional taxes taking the total sales tax to more than 11%.
