Brick-and-mortar retail might have scored a point over mega online retailers stores today, thanks to a new Supreme Court ruling that gives states the authority to require sales tax, even if the sellers don't have a physical location in that state.
But some specialty retailers don’t believe that customers will stop ordering gear from the convenience of their home and start driving to shops to compare low prices.
The decision, in South Dakota v. Wayfair Inc., overturns a 1990s decision meant to help, what was at the time, a relatively small online industry.
Nearly three decades later, e-commerce is a way of life and serious competition for in-store sales.
It is said to level the playing field for brick-and-mortar retailers who complained that the sales tax—and thus, overall higher total price—puts them at a disadvantage against internet sellers, such as Amazon and Wayfair, a home goods seller.
“The Supreme Court’s ruling is a huge win for the future of specialty outdoor retailers and will help ensure that all retailers compete on a level playing field,” said Amy Roberts, executive director of Outdoor Industry Association (OIA), in a statement. “We are proud to have been a part of the effort that resulted in yesterday's decision."
States also benefit because shoppers in most states are supposed to pay a use tax, equivalent to the sales tax, for purchases made on the Internet. Not many comply.
John Rounds, owner of Adventure Bound onthefly in Ellicotteville, New York, said he doesn’t think the sales tax ruling will help him and other specialty retailers.
“I’m an optimistic person, but I don’t think that that ruling will positively impact specialty retailers at all because I don’t think the consumer is driven by the tax savings for their purchase,” Rounds said. “I think that they’re driven 100 percent by the incredible one-click convenience of doing business on Amazon as well as the probability that if they’re a Prime member, they’re going to get it in two days and with free shipping. If I take my specialty retailer hat off and I objectively look at Amazon from that perspective, they have a phenomenally efficient website from a consumer experience standpoint. It doesn’t get any easier to hop on there and grab what you want.”
In St. Louis, Missouri, Jason Gray, owner of KAMP, sees two sides to the story.
“On one side, it slightly evens the playing field by making the big companies charge the same tax costs that we are obligated to for the products we sell in store,” Gray said. “This means that there is one less incentive to shop online for lowest-price motivated consumers."
Gray is mostly concerned about the complexities of selling online through Shopify, one of the channels retailers use build a robust wholesale business.
"On the other hand, we are also a small e-commerce business, and it’s unclear if managing those tax vagaries will fall upon us or on our e-commerce platform provider," he said. "It would seem that, at least initially, the bigger sites are probably also better equipped to handle new processing requirements than the little ones (as the original ruling pointed out). That said, it seems at least likely that new legislation will need to follow the overturned ruling, which we can only hope will make whatever comes next easier to navigate.”
At Montana's The Trail Head, Owner Todd Frank says the state is one of four others that don't collect sales tax, so businesses selling online in Montana have had a one-up selling out of state. The imbalance is at the heart of the issue, he said.
"For me, outside all the gyrations of who benefits and who doesn't, it is a simple issue of fair play across all channels," Frank said. "If Amazon, or others can and do ship into markets that have sales tax and they are not paying it, the issue is not just the unfair advantage. It's also the damage to the tax base of the communities, which in turn creates an unfair burden on those left paying the tax."
The downside, he said, is that any small business with an online store competing with the DTC channels, big online players, and Amazon, might be pushed out of the market by having to deal with paying taxes in all districts in the country.
"The big guys will have the volume to pay for the additional costs but once again the little guys get the short end of a big stick," Frank said.
More and more retailers are adopting an Amazon strategy. What's yours?