John Nelson
ATLANTA —The message from a panel at the ICSC Next Generation Conference in Atlanta last week was overwhelmingly clear: A federal retail sales tax for online retailers would level the playing field for bricks-and-mortar retailers who claim they are at a competitive disadvantage.
Currently, online retailers do not equally share the burden shouldered by bricks-and-mortar retailers to collect and remit state sales tax.An online retailer is required by law to collect sales tax from a consumer only when the consumer resides in a state in which the online retailer has a physical presence, such as a retail store or distribution center.
That compliance requirement stems from the U.S. Supreme Court’s ruling in 1992 in Quill Corp. v. North Dakota. The ruling was handed down by the nation’s highest court before online banking was even established. Panelists at ICSC conference agreed that the measure is outdated.
To address the disadvantage, two pieces of legislation have been proposed to Congress to implement the tax for online retailers: S.1832 (the Marketplace Fairness Act) and H.R. 3179 (the Marketplace Equity Act). The panelists urged the audience to write to their congressman to support the legislation.
The proposed measures are gaining momentum. Seattle-based Amazon has gone on record in support of a federal solution to the polarizing sales tax issue. Paul Misener, vice president for global public policy for Amazon, spoke at a Senate Commerce Committee on August 1 in Washington, D.C., in favor of the bills.
“Without a federal solution, you’ve got all these different situations going on because every state has different laws,” said Adrielle Churchill, a staffer for U.S. Rep. Steve Womack (R-Ark.), who co-authored the Marketplace Equity Act with U.S. Rep. Jackie Speier, (D-Calif.). “It’s a mess to a point where Amazon is — on board with a federal solution.”
For consumers looking for the best price, online-only retailers such as Amazon are hard to beat. A pair of shoes or a new TV will likely be cheaper online because the online retailer is exempt from paying the tax, assuming it doesn’t have a physical presence in the state in which the purchase was made.
In some states such as Utah and Texas, that’s nearly a 10 percent price advantage. That scenario is analogous to an Olympic marathon runner getting a two-and-a-half mile head start ahead of the other runners in a race.
“Level the playing field” has become a war cry of sorts for retailers who are at a distinct disadvantage with their cyberspace counterparts. That message came during an ICSC panel discussion entitled “Bricks, Clicks and Tricks: How the Imbalance in Sales Tax Collection Disrupts the Retail Landscape.”
The panel discussion included Churchill; Heather Kennedy, director of government relations for The Home Depot; Ernie Pomerleau, president of Burlington, Vermont-based Pomerleau Real Estate; and Matt Ramsey, a Georgia State Representative from Peachtree City, Georgia.
Adam Ifshin, ICSC trustee and eastern divisional vice president, moderated the panel. Ifshin is also the president of Tarrytown, New York-based DLC Management Corp.
The panelists emphasized that whether a product is purchased online or in a store, the bottom line is that a transaction has occurred and the sales tax is due. When the online retailer doesn’t collect the sales tax, the consumer becomes responsible for tracking his or her purchases and filing them with the state department of revenue. In fact, the consumer is subject to penalty if the sales tax isn’t filed.
SALES TAX NOT THE ONLY ISSUE
The panelists emphasized that merchants are growing increasingly concerned that their shops are used as showrooms, with customers finding what they want in the store but then buying it online. The “showrooming” phenomenon was front and center during the 2011 holiday season when online retailers like Amazon incentivized shoppers to scan bar codes of the products they wanted by using an application on their smartphones. Amazon would then knock a few dollars off the final price of the product.
“[Showrooming] is probably the single biggest irritant in this whole system,” said Pomerleau, referring to the online retail arena. “It is a constant battle daily.”
The panelists also discussed the role that bricks-and-mortar retailers have in the local economy. For every $100 spent in locally owned independent stores, $68 returns to the community, according to the 3/50 Project, a Minneapolis-based group that promotes shopping locally. If $100 is spent at a national chain, the return to the local economy is $43.
For online purchases, the 3/50 Project finds that there is zero return to the local economy. Additionally, for every $1 million in sales, bricks-and-mortar retailers add 3.61 jobs, according to the ICSC. Amazon, on the other hand, only adds 0.88 jobs per $1 million in sales, a more than 75 percent disparity.
Rep. Ramsey and Churchill emphasized that the bills won’t establish a new tax, but will close what they deem a loophole and have the online retailers be accountable for the tax. An economist at the University of Tennessee projects that in 2012 more than $23 billion owed to the states will go uncollected.
The government’s role in resolving this issue is paramount, says Ifshin, the ICSC trustee. “What goes on in Washington is equally important [to your business] as what you and your team figure out in your office.”
— John Nelson, editor of Texas Real Estate Business, a France Media Inc. publication