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Brick-and-mortar stores win with court decision

Cyber Monday was a day IBM Digital Analytics Benchmark says was the biggest e-commerce day in history. Ironically, it was also a day on which proponents for congressional passage of the Marketplace Fairness Act of 2013 might have gotten a boost from the U.S. Supreme Court, which announced its refusal to take up a challenge to a New York state law aimed at getting Internet sellers to collect and remit sales tax.

The Marketplace Fairness Act has already passed in the Senate and is pending in the House. It would not mandate but only update interstate commerce law so that the states could, if desired, require all Internet sales into their state be taxed in the same way all brick-and-mortar sales are taxed now.

Weary of waiting for Congress to act, a number of states like New York have passed laws that provide for a partial remedy. Specifically, these laws define as an in-state business any Internet seller that pays any in-state affiliate to refer customers to them. In-state businesses, of course, must collect sales tax.

Both and challenged the New York law, first in trial and later in appellate courts. They lost at both levels. Now, the last level, the Supreme Court, is not interested in reviewing the lower court decisions.

The last time I blogged on this subject in June, it seemed most readers commenting didn’t agree with me that Congress should pass the bill to level the playing field. For example, a reader named Brian wrote “the playing field will never be equal.” He’s probably right. But I find it hard to reconcile the fact that brick-and-mortar businesses and their customers pay a disproportionate share of a state’s tax burden. That’s not fair or level. What’s really happening, then, is that lawmakers refusing to act are protecting Internet commercial businesses at the expense of traditional main street retailers. These are the businesses who hire local employees, pay local property taxes for schools, support community events and, thereby, improve and advance their communities. Interestingly, they’re the very communities Internet sellers do business in while contributing nothing.

The two biggest objections to the proposed law seem to be: (1) the increased burden put on Internet sellers of the myriad tax rates around the country; and (2) the fact that leveling the playing field will not necessarily drive sales back to the brick-and-mortar stores anyway.

To the first objection, the bill provides that any state that might require Internet sellers to collect and remit the sales tax must provide computer programs/systems free to the sellers. It sounds complicated, but if we have the capacity to monitor the world’s cellphone calls I figure we can produce the needed computer programs to make life easy for Internet sellers. And it’s notable that the bill only applies to Internet sellers doing more than $1 million in business annually.

Second, anyone who really thinks passage of this bill will reduce the number of buyers using the Internet and drive them to their local retailer isn’t in the real world. People buy on the Internet today for two reasons: 1) primarily for the convenience of looking at a bigger selection while sitting on the couch and having it delivered to their door; and 2) secondarily the savings of 4 to 9 percent sales tax (shipping these days is mostly free).

The Supreme Court is right in not reviewing the New York case. But more than that, it signals that states (most needing more tax dollars) can tap into a big pile by passing laws like New York that, at least, partially solve the problem. But, logic and tax fairness still call for congressional passage of the Marketplace Fairness Act.


4 comments on “Brick-and-mortar stores win with court decision

  1. Jody

    (1) Internet sellers don’t have the same retail overhead burdens of brick & mortar stores, so a part of doing business for them will be to charge the appropriate sales tax. Boo-Hoo. I don’t feel sorry for them.

    (2) We often hear from customers that if they buy it online they don’t have to pay sales tax, so it will definitely help level the playing field, because when they shop price, sales tax IS a factor.

    (3) Some states already require brick & mortar stores to charge sales tax based on the county their customer is in, so the programming already exists somewhere. Excuses, Excuses.

    (4) Convenience is a two-way street. Buying online can save time vs. driving to a local store, but if you need something right away or want to see your options in person before buying, or you want excellent advice, product or installation instructions, and knowledgeable customer care during and after your purchase, where will you go when all the brick & mortar stores are gone? You can’t get that from an Internet retailer like you can from a good Brick & Mortar store with people who know their products inside and out, who don’t just say “I’m sorry you’re having a problem with your widget, have a nice day!”

    Leveling the playing field means just that. If Internet and Brick & Mortar stores both have to charge sales tax, that dollar amount is taken out of the equation. People will make the choice based on convenience, availability, selection, whatever else, but NOT based on the fact that Brick & Mortar stores will charge them sales tax and online sellers won’t.

    It’s not just that the tax burden is left to the Brick & Mortar stores, it’s that the states are losing the tax from the Internet sales altogether! If the states have to provide systems to allow proper sales tax collection, they’ll make up for the cost easily by collecting those monies after the systems are in place. This is a no-brainer.

  2. tom

    I agree, we need to support the local bricks and mortar stores. Being a boater (3rd generation) and in the trade I can say there are just too many boats filling up anchorages and cruising grounds. We need to continue local price gouging practices and drive more folks out of the sport.

  3. enginecom

    If this passes then it should drive more people to those who sell less than $1m/yr. I hope they don’t go after auction houses ie ebay which would be obligated to collect the tax and all their small vendors would suffer. Those who sell under $1m will be hard to police unless each state they reside in would monitor their sales. As a MA based vendor I already file monthly sales and sales taxes. If the states spoke to each other then this would work. As any other government program some states will opt out leaving the other states to go after those who are sheltered there. I can see this clogging up the courts. The best way is for the feds to assess a base federal tax to be distributed equally to each state.

  4. Doug Reimel

    I find it interesting that local governments want to raise taxes because of short falls in revenue. Yet when the big new box store comes to town the same local governments fall all over themselves to give tax breaks to the new guys on the block. What should be done is lower taxes so everyone benefits not just the chosen few. Brick and motar is were the knowledge is at, that is a given. Interestingly enough is that the internet stores just are not greedy enough. Yes, if they would just raise there prices a small amount, instead of leaving an abundant amount of money on the table. Their stock value would be higher, the ROI would be higher, and their business model would work better.

    Business will adjust it is the nature of the beast. The tax man always wants more, because, the tax man promised someone else more. Circular conversation

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