As a taste of what’s to come for online consumers, California and Pennsylvania now are requiring that sales tax be charged on Internet purchases made by shoppers living in these states.
The deadline for online retailers to register with the states’ revenue departments was Sept. 15 and Sept. 1, respectively.
California Assembly Bill 155 applies to large online retailers that have sold more than $1 million to California consumers in the past 12 months, according to the California State Department of Equalization.
In Pennsylvania, all online retailers with a presence in the state (which includes anything from distribution/fulfillment centers and sales people regularly entering the state to company trucks making deliveries and advertising relationships where compensation is based upon sales or Website clicks) must collect state “use” or sales tax or face penalties.
Many applaud this as a welcome change for the pool and spa industry, indicating it’s a win-win for brick-and-mortar stores, as well as honest online merchants.
“We feel good about the law,” said Grey Frandsen, CEO of Magnolia Pool & Spa Supply in Riverside, Calif. “I think it will benefit brick and mortars, and will set an even playing field. The overall logic is to treat the Web like a normal retail outlet because retailers have to report their sales tax. If a guy from Canada visits a store in California, he’s got to pay the tax. This is the same thing.”
Magnolia has nine physical locations throughout California and also is an Internet retailer. Yet Frandsen operates the two branches seamlessly and believes the new law will boost his sales in-store and online now that residents will have to pay a tax regardless of where the online retailer is located.
“On the Web side, I know that California customers were buying from my competitors out of state, but that will change now,” he explained. Furthermore, he said customers who previously opted to buy on Amazon.com to save on sales tax now will visit his stores in person instead.
Other retail store operators see this as one of many steps necessary to help retailers regain some ground in the battle between Amazon and brick and mortars.
“It’s a major issue, and the tax is definitely needed,” said Richard Giamusso, general manager of Olympic Pools, which has three retail stores in greater Scranton, Pa. “It’s a start to get brick and mortars more in line with online retailers. But it’s just one step. If my price in the store is $350 and online its $280, even if they have to pay sales tax, it’s still cheaper online. It’s good for the state to bring in more income, but how does it help the dealer?”
Indeed, many agree these changes will do little to alter consumers’ shopping habits.
“If sales tax is the only reason you think you have an advantage, you have to look for other advantages,” said Stuart Neidus, CEO of Mayfield Village, Ohio-based Anthony & Sylvan. For his part, Neidus doesn’t believe the new laws will greatly affect his company.
Anthony & Sylvan, which has locations in several states that now require residents to pay a tax on online purchases, including Pennsylvania, Texas and New York, announced the official grand opening of its online retail store in May. However, consumers who purchase from the company often live in the state where it has a presence, making the new law irrelevant.
Regardless of the law, a lack of oversight will pose challenges to jurisdictions seeking to collect the sales tax from companies located outside the affected states. For example, if a retailer based in Iowa sells product to a resident of California, who is going to police the merchant?
“You may be an out-of-state company selling to California and you’ll be laughing all the way to the bank [because] who is going to enforce it?” Frandsen asked. “We will have to wait and see.”
Many predict this trend will continue to include all 50 states and likely will become a federal law. Three bills currently are in the U.S. House of Representatives that could shape the future of online retailing. Two of them — the Marketplace Fairness Act and the Marketplace Equity Act — are supported by the National Retail Federation.
Stephen Schatz, NRF’s senior director of media relations, communications and public affairs, believes the laws are gaining traction. “Momentum is positive on the national front,” he said.