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Published
Jun 25, 2018
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Asos and Boohoo shares punished on US sales tax changes

Published
Jun 25, 2018

Shares in UK online Fashion retail giants remain depressed after falling late last week on the back of a US Supreme Court ruling that ended the restriction on states collecting sales tax from webstores.


Boohoo.com's link-up with Paris Hilton will raise its profile in the US but a new ruling means it will also have to raise its prices



A 1990s ruling had obliged states to add sales tax only if e-tailers had a physical presence within their borders, but with the ruling overturned, it means sales tax will be added to all transactions. The aim is to level the playing field between physical store retailers and the pureplay online rivals that have been grabbing market share in recent years.

The two UK companies see the US as a major growth market. They will see their prices rising in America at a time when the looming threat of trade wars is also adding extra price burdens onto fashion items.

Asos had previously applied sales tax in states where it has physical operations (which doesn’t have to mean stores but also ops such as distribution hubs). That affected New York, Atlanta and South Dakota. But it hadn't been applying sales tax in California, for instance, a state which not only has one of the highest tax rates at more than 8%, but which is also a huge market for Asos.

Last year, the company sourced around 13% of its total revenue in the USA, which added up to over £260 million coming from America.

And the stakes are even higher for Boohoo, with 16% of its revenue (or around £93 million) coming from that country.
Of course, it wasn't only international names that saw their share prices falling after the ruling. Domestic giants such as Amazon and eBay were also affected.

Analysts have put a very wide range on the figure that the ruling will now see states collecting, with sums between $8 billion and $23 billion being suggested.

Sales tax varies widely across the US with some states not applying it state-wide at all and others ranging from 1% up to around 10%.

As well as making goods sold to American customers more expensive, the system also adds an extra level of complexity to e-tailers’ operations.

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