Shop Talk: Letters to the Editor

In this issue's Shop Talk department, we thought we'd share some 
"Letters to the Editor" we received over the past several months.

Re: Editor's Note, October 2010, Quick, Read THIS NOW
From my personal experience as a small business owner, I will not participate in one of these [daily-deal coupon promotion] again. The business offering the promotion — e.g., Groupon, LivingSocial — splits the coupon price with the business owner. For example, if the coupon is $40 for $80 worth of service/merchandise, the business owner gets $20 of the $40. While the business owner is wooed on the promise of bringing in all this new business, all it ends up being is a bunch of people coming to your website/business and spending exactly or as near as possible to the amount of the coupon and nothing else. That potential repeat customer or customer who will hopefully buy more than the value of the coupon never really materializes. Truth of the matter is they come in, they spend the exact amount of the coupon or as near to it as possible and they're never heard from again. At least this was my experience. This coupon business is disastrous for the small business owner, and could possibly put someone out of business instead of helping to grow the business. I definitely wouldn't participate in a coupon deal again. These deals are great for the consumer, but not so great for the business owner.

Olga Andreu
Owner
Extinct Collectibles

Re: Editor's Note, May 2011, An End to the Tax Holiday for Online Shoppers?
We're a 27-year-old brick-and-mortar golf equipment retailer that also has an e-commerce website, eBay store and sells on Amazon. Our brick-and-mortar business competes well against e-commerce businesses due to the high level of service our in-store customers receive compared to internet businesses.

A brick-and-mortar store that cannot differentiate itself from an online retailer, including its own web store, should expect to lose traffic. That's why the big-box folks are doing the complaining. Big box generally means poor service. Home Depot's service department sent me an email recently that said it would be approximately three weeks before they could address my complaint.

Oregon, for example, where I have some friendly competitors, never had sales tax for brick-and-mortar retailers. Therefore, being in Texas, I was always at a competitive price disadvantage of 8 percent or more compared to Oregon retailers due to having to collect Texas state sales tax of 8.25 percent.

Until all states are required to collect the same amount of sales tax, companies located in states such as Oregon will retain an advantage.

Our e-commerce business grew from 15 [employees] to 45 employees and our payroll quadrupled. Payroll taxes increased proportionately. Our local property taxes doubled due to improvements. So at the end of the day, any additional tax that reduces our e-commerce growth proves that the government will not collect more money, but will simply determine who they collect it from.

Jeff Williams
President
Games People Play, Inc.
Beaumont, TX

Re: Editor's Note, May 2011, An End to the Tax Holiday for Online Shoppers?
The Supreme Court ruled in the National Bellas Hess case, and again in the Quill case, that an out-of-state corporation didn't have to collect and remit sales taxes without a physical presence 
(nexus) within the state. This was based on either or both of the Commerce Clause or Due Process Clause of the U.S. Constitution. In the Quill case, the Supreme Court indicated that the underlying issue was one that Congress may be better qualified to resolve — and one that it has the ultimate power to resolve. Since the case was resolved in 1992, Congress has either decided to ignore the problem or has been too busy with other matters to address the issue.

It should be noted that although the seller need not collect and remit online sales tax, the consumer is still responsible to pay the use tax (most often the same as the sales tax). Thus there's no argument about what's actually due to the taxing jurisdiction. The fact is that the consumer rarely pays the use tax.

At one time the issue was the complexity of complying with the taxing requirements of all the country's taxing jurisdictions, but that's largely been eliminated with the many tax programs now available that can provide the applicable sales tax for all taxing jurisdictions. Of course the expense to file and remit still remains.

On a broader level, it was argued in the Quill case that the state had to dispose of millions of catalogs and thus Quill Corp. was, in fact, getting a benefit of state services. I never understood this line of reasoning since the sales tax was actually being paid by the consumer and taxed at the rate of the consumer address. So even though the out-of-state retailer wasn't getting the benefit of police or fire protection, the consumer was getting that benefit as well as other state-provided benefits.

So now the question is that a brick-and-mortar retailer is collecting and remitting a sales tax to the taxing jurisdiction for that location, not for the location of the consumer's home address, which could have been in a different taxing jurisdiction. One approach to keep the remittance of sales tax simple is to have out-of-state retailers collect and pay the sales tax for their physical location. Of course that would have many mail order companies moving to states with no sales tax. A uniform national sales tax and other suggestions have been floated, with none gaining much traction with direct marketers.

So why do direct marketers resist to collecting and remitting sales tax? There are many who believe not collecting sales tax levels the playing field with brick-and-mortar retailers because the direct marketing customer still has to pay for shipping charges. There are others who believe collecting sales tax would have a negative impact on sales and thus hinder the growth of the direct marketing industry.

I think it's now safe to say the direct marketing industry is considerably different than it was in 1992, and it probably can survive the imposition of the collection and remittance of sales tax. It would seem time for Congress to act and provide the appropriate framework.

Mitchell Schultz
Formerly marketing director
CCS Division of Foot Locker Inc.