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UK brands undeterred by new US etail tax

UK brands and retailers have told Drapers they will forge ahead with US expansion, despite online businesses being faced with a new sales tax.

Last week the US Supreme Court ruled that individual states have the authority to collect sales taxes from online retailers, overturning a 1992 “physical presence requirement” that previously only affected retailers with physical stores.

States could earn an additional $8bn-$23bn (£6bn-£17bn) a year in tax as a result, predicts Wayne Brown, equity research analyst at investment bank Liberum.

Kantar Consulting’s senior analyst for US clothing and beauty retail, Tiffany Hogan, said the impact is likely to be minimal for most larger businesses, such as Asos and Boohoo, which will be able to absorb the cost.

“The highest state sales tax is in Louisiana at 10.02% and the lowest in Alaska at 1.76%. Five states don’t even charge this tax. The impact of absorbing this cost within a large business could be minimal.”

Daniel Najar, co-CEO and co-founder of Chi Chi London, which sells in the US, said: “I don’t think this move by the US government has anything to do with ensuring there is a level playing field between store and online. The government wants to be able to impose tax on big players such as Amazon and Ebay.

“Any taxes will be passed on to the consumer by way of additional fees, which will have a negative impact in what is supposed to be a ‘free market’.”

However, he added: “We are in the process of significant international growth and won’t be deterred by any additional levies. We will ensure our customers do not suffer the effects of this change in position and will instead aim to work smarter to maintain our prices.”

Karina Mitchell, co-founder and brand director of womenswear label Lost Ink, which also trades in the US said: “We are not planning to adjust our prices and, if this does take place, it would be driven by our partners’ decision. We have very ambitious plans for US expansion and will continue working towards it.”

However, operational issues could arise for smaller businesses, as they cope with being charged different tax rates across states.

Stephen Sidkin, fashion law partner at Fox Williams, said: “I would recommend prevention over cure. It is important for smaller UK brands to work out what business they’re doing in the US, to take advice on this and to start charging sales tax.”

Sidkin added that the UK government may look to follow suit: “It is an easy win politically and could be part of an overall plan to help the high street. But there may be issues around how you collect the tax, if you have an online seller based in China, for example.”

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