The US Supreme Court (SCOTUS) ruled today that the State of South Dakota can apply their brick and mortar sales taxes to those businesses domiciled outside of the state who sell their products and services online to South Dakota’s residents. This is a significant negative development for the digital economy and for the NASDAQ which has a heavier weighting of online companies. After hitting its all time high along with the Dow and the S&P 500 earlier in the year the NASDAQ early this week hit an all-time new high. The SCOTUS announcement will send the index back down to earth. The index has likely seen its high for the foreseeable future.
The SCOTUS event has not yet been digested by financial media because the $1.2 trillion digital represents only 6.5% of the US’s overall economy. It will become more heavily discounted by investors since the NASDAQ and especially the FANG (Facebook, Amazon, Netflix and Google) stocks have been leading the market and keeping the S&P 500 propped up. Below are the reasons why the new tax will negatively impact the digital economy.
- Millions of online merchants will have to upgrade their technology and software to collect sales taxes levied by states and even municipalities. For example, New York State and New York City each levy 4% sales taxes.
- The prices that the consumers will pay in 45 of the 50 US states to purchase products and services online will increase by an average of 5%. This will slow the growth rate of the digital economy which very recently had been growing at three times the rate of the over-all economy.
The SCOTUS sales tax decision further increases the probability that the S&P 500 hit its all-time high earlier this year for the secular bull which was born in 2009. See my February 6, 2018, Equities.com article “BULL DEAD, BEAR DOB 01/31/18: Expect Stock Market Decline of at Least 50%”. The video below provides details about the secular bulls and bears since the 1800s in the US. Since the minimum life span of a secular bear is 8 years its viewing is highly recommended.
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