Will an Internet Sales Tax Hurt Blue Nile?

Last week, a commenter raised the issue of what impact an Internet sales tax could have on the leading diamond e-commerce site, Blue Nile.

As we know, Blue Nile sells a high value product, and charging sales tax would mean several hundred dollars added to its prices. Which could make a big difference for that site in particular as price is “incredibly important” to its buyers, according to its chairman. This issue was addressed in the website’s latest 10K:

… A successful assertion by one or more states or foreign countries to require the collection of sales or other taxes on the sale of our products and/or to require us to disclose our customers’ private information to tax authorities could result in substantial tax, penalty, and interest liabilities for past sales, discourage customers from purchasing products from us, decrease our competitive advantage, cause us to discontinue certain successful sales and marketing initiatives or otherwise substantially harm our business and results of operations.

… [A] number of states, as well as the U.S. Congress, are considering or have adopted various initiatives designed to impose sales, use and other taxes on Internet sales. The successful implementation of any such initiatives could require us to collect sales, use and other taxes from purchasers located in states other than Washington. The imposition by federal, state and local governments of various taxes upon Internet commerce could create administrative burdens for us and could significantly decrease our future net sales. (Emphasis added.)

What’s interesting is that Blue Nile appears more concerned about the impact of online sales tax on its revenues than other publicly traded dot-coms. For example, Amazon’s most recent 10K references the possibility of more sales tax legislation, but seems more anxious that those laws “could result in substantial tax liabilities, including for past sales, as well as penalties and interest.” And Bluefly’s filing expresses concerns that such legislation could “decrease sales,” though it doesn’t seem to worry it will impact them significantly.

Blue Nile does currently charge sales tax in Washington (where it’s headquartered) and New York. It would be interesting to see if sales in those states have been impacted, as this little passage certainly implies. The company did not respond to a request for comment. 

It’s also worth noting the three jewelry e-tailers that Blue Nile singled out as competitors in its filing: Amazon, James Allen, and Brilliant Earth.

JCK News Director