Unfinished Business

Supreme court ruling on sales tax

Supreme Court’s tax decision could be the catalyst for national regulation

Last month, retailers across the country celebrated the U.S. Supreme Court’s landmark 5-4 decision in South Dakota v. Wayfair that ruled states have the authority to require out-of-state sellers, i.e. online retailers, to collect and remit sales tax.

“Well it’s about time,” says HFA member Wogie Badcock, Badcock Home Furniture & More, Mulberry, Fla. “The home furnishings industry has been fighting against the unfairness brick-and-mortar retailers face since the early 1980s when trans-shippers avoided taxes. The situation has been the same just with a newer platform of the internet. All brick-and-mortar stores ever asked for was a level playing field; and now we’ll get it.”

Badcock (who’s recognized throughout the furniture industry as a leading retail advocate and honored by the National Retail Federation as a Retail Champion) is a member of the HFA’s Government Relations Action Team (GRAT), a volunteer group of members committed to working on regulatory and legislative issues that impact furniture retailers’ businesses.

Several members of the team were thrilled with last month’s ruling.

HFA and GRAT member Dru Jeppe, Reeds Furniture, Agoura Hills, Calif., says, “This ruling is one of the most important rulings in our lifetime.”

[Podcast: The 20 – w/Patrick Clark from Wayfair: Is eCommerce just a game?]

Writing for the majority, Justice Anthony M. Kennedy said the previous tax law for online retailers had distorted the nation’s economy and had caused states to lose annual tax revenues of as much as $33 billion collectively.

“Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers,” he wrote. “Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own.”

For the last couple of years there have been legislative solutions discussed—Marketplace Fairness Act, Remote Transaction Parity Act—but Congress hasn’t come up with an option everyone can get behind. HFA members have been meeting with legislators for years, explaining how this missed income affects states, how it impairs retailers’ ability to compete with online-only sellers and how it is not a new tax, but rather an enforcement of an existing tax. They’ve raised the profile of furniture retailers everywhere who account for more than $111.5 billion in annual sales and employ more than 480,000 Americans, according to the U.S. Bureau of Labor and Statistics.

The immediate fallout from the court’s decision is unknown. The new ruling will surely cause many states to create and implement out-of-state sales tax procedures and HFA members should work with their local elected officials to provide input as needed in that process.

“After we all finish celebrating, however, we do need to focus on getting a good [federal] bill with an efficient, low administrative burden, national collection system passed, since the ruling could also have a negative impact on some of our members with multi-state distribution,” says HFA and GRAT member Eric Blackledge, of Blackledge Furniture in Corvallis, Ore.

States will likely exercise restraint and avoid being overly burdensome so online retailers in their own states won’t face additional pressures from other taxing jurisdictions. There’s an existing Streamlined Sales Tax Project (SSTP), a coalition of 23 states whose purpose is to simplify and modernize sales and use tax administration and reduce the burden of tax compliance, that will likely get a fresh look after the court ruling.

There will be a renewed push in Congress to move clarifying legislation—particularly to protect small sellers like those represented by eBay and Etsy. States can protect small businesses through their rules like South Dakota tried to do in its law that led to the court’s ruling. The threshold in that law for collecting/remitting sales tax in South Dakota was $100,000 in delivered goods/services or 200 separate transactions.

Congress has not shown the ability to pass related legislation for more than 20 years and the Supreme Court’s ruling isn’t likely to change that. Before legislation is passed, Congress is likely to wait and observe how the state landscape evolves—if the marketplace appears to need guardrails, then Congress could be persuaded to act. The prevailing argument in Congress has been to allow the states to determine their sales tax collection method/rules so that will be the stance in the interim.

“This has been a long hard fight for all of our retailers and home town fairness,” says HFA and GRAT member Jim Kittle, of Kittle’s Furniture in Indianapolis. “HFA has led this effort for years. When we work together eventually good things happen.”

The HFA will continue to monitor the implementation across the country.

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