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ETFs & Stocks to Win/Lose on SCOTUS Sales Tax Decision


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The online retail stocks were hit hard on Jun 21, 2018 on the ruling of the supreme court of the United States (SCOTUS) on sales tax. The 5-4 ruling permits states to collect sales taxes from online and out-of-state retailers . The latest decision reverses a 1992 Supreme Court ruling that prohibited the practice.

Justice Anthony Kennedy noted that the reason for the upturn in the previous ruling was the radical change in online retail industry. The 1992 ruling was mainly concerned about the mail-order business worth $180 billion .

But now the online retail industry has ballooned.  "Last year, e-commerce retail sales alone were estimated at $453.5 billion," he mentioned. This along with traditional remote sellers amounted to more than half a trillion dollars.

Below we highlight a few ETF and stock winners and losers following the Supreme tax ruling.

Brick-and Mortar Retailers: A Clear Winner

Brick-and Mortar retailers became the most-expected winners. Companies like Walmart Inc. WMT (up 0.7%) and Kohl's Corporation KSS (up 1.14%) thus gained on Jun 21. The broader retail ETF VanEck Vectors Retail ETF RTH added about 0.24% on that day.

Online Retailers: An Obvious Loser 

Online retail ETFs like Amplify Online Retail ETF IBUY (down 1.4%) and ProShares Long Online/Short Stores ETF CLIX (down 2.3%) slid on Jun 21, to reflect the Supreme Court ruling.

Amazon: A Surprising Long-Term Winner

Though online retail behemoth Amazon.com Inc. AMZN lost more than 1.1% on Jun 21, experts do not foresee the company to suffer from the ruling. This is because "Amazon already collects sales tax on the products it sells directly." Since this makes up about half of all units sold on its site, the court ruling should not have much impact on Amazon.

However, the rest of the products are sold by third-party merchants on Amazon's marketplace and "the ruling doesn't make clear how third-party sales should be taxed ," per a law professor at the University of Arizona, as quoted on CNBC. Even Moody's analyst Charlie O'Shea believes that whether higher taxes on those smaller retailers' goods will at all affect Amazon's overall revenues is still unclear.

Moreover, companies such as Amazon and eBay Inc. EBAY (down 3.25% on Jun 21) have wide international exposure, which should cushion them from U.S. State taxes. So, investors can have faith on Amazon-heavy ETFs like Consumer Discret Sel Sect SPDR ETF XLY (read: May's Retail Sales Growth Highest in 6 Months: ETFs & Stocks ).

Small Online Retailers Likely to be Hard-Hit

Smaller online retailers with concentrated exposure to the U.S. market are likely to be knocked-down the most. Notably, online retailer Overstock.com Inc. OSTK shed a solid 7.2% on Jun 21. The company generates sales mainly from the United States.

Consumers May Feel the Pinch

Overall, if taxes are hiked, companies may choose to pass that burden on to consumers. So, consumers' shopping bills could see a jump ahead. iShares US Consumer Services ETF IYC should thus be on investors' radar.

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report

eBay Inc. (EBAY): Free Stock Analysis Report

Overstock.com, Inc. (OSTK): Free Stock Analysis Report

VANECK-RETAIL (RTH): ETF Research Reports

SPDR-CONS DISCR (XLY): ETF Research Reports

AMPL-ONLN RETL (IBUY): ETF Research Reports

ISHARS-US CN CY (IYC): ETF Research Reports

Walmart Inc. (WMT): Free Stock Analysis Report

Kohl's Corporation (KSS): Free Stock Analysis Report

PRO-L ONL/S STR (CLIX): ETF Research Reports

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Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , ETFs
Referenced Symbols: AMZN , EBAY , OSTK , RTH , XLY



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