Posted on 06/23/2018 8:00:59 AM PDT by Kaslin
Bloomberg Businessweek just did a feature piece about the demise of Toys R US that, complete with an illustration of a crying Geoffrey the Giraffe, really tugs at your heart strings. It's a clever take that puts the blame squarely on private equity investors and executives who, the magazine claims, kept the company alive for a decade or more by "living on borrowed money."
While that's true in part, there's much more to the story. Almost no where in its exposition of the company's failure does it examine the underlying problem: government policies that favor clicks over bricks by granting tax and regulatory preference to e-tailers over what's come to be known as main street retail.
Up to now, sales tax must be collected on an item purchased via the Internet when the seller has a physical presence in the state in which the buyer resides. The technical term for that is nexus and it meant, according to what the United States Supreme Court found in the case of Quill v. North Dakota, that a state could not mandate the collection of sales tax on goods sold to purchasers living out of state where no nexus existed.
To many, this differentiation became one of the loopholes creating essentially preferential tax treatment for Internet retailers at the expense of local stores like Toys R US, which once dotted the American landscape. It was the toy store of choice for many parents until it became apparent the same items you could by in the store could be bought cheaper on the Internet and delivered to your house already gift wrapped.
On Thursday, the court reversed itself. In a 5-4 decision the justices now found state concerns about revenue loss should take precedence over concerns about a physical nexus. Writing for the majority, Justice Anthony Kennedy opined, "Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States. These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause."
The sweet deal that cut into the ability of stores like Toys R US to survive is now at an end. Some will mourn the end of what they thought was smart shopping that took advantage of a loophole to lawful and legally reduces the amount of taxes paid. What it really was though was tax evasion. Most states have on the books a requirement people who purchase things from another state and have it shipped to them voluntarily remit the sales tax they would have paid if they'd made the purchase at the local mall.
Admittedly it's easier to understand the old system in practice than it is to explain it on paper, but it had a major effect on American shopping habits. It helped e-tail grow at the expense of local retailers. Congress tried and failed to address that bias, leaving government to pick the winners and determine the losers.
If Toys R Us is going to be held up as a cautionary tale, let's be sure to look at the big picture. It's easy, even fashionable to blame private equity, casting investors as modern-day, rapacious, Gordon Geckos buying up companies just to strip them of their assets, make a quick buck, and leave wrack and ruin in their wake. That may be the way it plays out in Hollywood but it's not close to the truth. The people who owned and ran Toys R US lost $1.3 billion getting it wrong in part because they couldn't overcome the growing power of e-tail built on government preference.
It won't take much to level the playing field and ensure everyone is playing by the rules. The Supreme court has put the ball in motion. Now it's up to Congress and the states to make new policies that are fair to everyone. Main Street brick and mortar can successfully compete with click-based e-commerce if the rules are fair and that way everybody, especially the American consumer wins.
>>Do kids play outside and ride bikes and play sports for fun, not sports in organized leagues, but sports just for fun?
They can’t. When a couple has only one child, or maybe two with very specific goals put in place from birth for each, they can’t risk any injury occurring to their precious offspring. So, unsupervised outside is play is seen as something that is about the same letting a kid play with a hand grenade. Letting their kid pay unorganized sports is seen as something like sending them off to fight the battle of Antietam.
This is also seen as “unproductive” time wasted that could have been spent on “learning” things that will pass a test, doing activities that will look good on the child’s c.v. to get into the right magnet school, or (most importantly) will not be viewed by the other parents as “good parenting”. Peer pressure among kids isn’t ruining kids. It is peer pressure among parents that is ruining kids.
Counting the time invested in getting with my bank, reviewing my statements, etc. it didn't save me all that much money. Or stress.
After the crash in 2008 the fertility rate has plummeted.
PC,LBQT, free BC,and cost of kids has reduced the number kids that would be the market for toys.
This reduction in kids is impacting primary schools now but will dramatically impact universities by 2026 and the workforce by 2030.
But Toys R Us and other big stores aren’t really competing with other large stores that sell online because those stores usually do have a physical presence in the shopper’s state as well. ToyRUs failed because parents decided shopping there was not worth the bother and aggravation when there were other options that offered better prices and customer services and store policies. OMG concept!
For most common low ticket items the merchant I buy from is not going to be decided on whether my purchase is taxable. I imagine it is the same for others. However deciding what shops I go to is decided by the aggravation level offered by that store. That goes beyond prices.
At a rather high expense and a need to constantly upgrade. Each county in Florida has the option of tacking on a local surcharge I understand this is not unique to Florida. So if I sell in Florida I must make sure that the county tax of the person who is buying is collected. That amount can change every year if not more often. But according to you doing such on a national level is easy-peasy. Sure.
“Main Street brick and mortar can successfully compete with click-based e-commerce if the rules are fair and that way everybody, especially the American consumer wins.”
BS! Most times shipping costs far more than the instate sales tax, but you couldn’t find the item locally at any price.
Now all the small online retailers will close and we will be out of luck.
An example is mower blades for my 50” cut Cub Cadet. New blades cost about $75 at TSC, but I can buy the exact same set of blades for $25-$30 online from a warehouse. Will they now go out of business?
If your state charges 6,7,8 % in sales tax for high dollar items ( over $1,000) you would be foolish not to buy online.
A small outboard motor can cost $5,000 or more, 8% of that is $400!
You must be from a state with a low sales tax.
While I disagree with the ruling, your analysis is incorrect. Small businesses will use simple programs that will apply the taxes—it’s already baked into most prevalent platforms. Yes, it’s a pain, but anyone who expects any government to miss any opportunity for increasing tax revenue is living in a fantasy. This won’t end online commerce, nor will it save brick-and-mortar businesses.
The next step is outright price controls. Why should those big box stores be able to charge less than local retailers? The horror!
>> its not gonna inconvenience mom and pop. Plenty of software out there which will quickly adapt <<
Very easy for you to say, but not the least bit easy for a small firm like my former company. Such little outfits with interstate shipments now will need to file and pay separate fees for sales tax numbers in 49 other states plus DC — and maybe Puerto Rico, VI and Guam.
Moreover, the small firm also will need to file separate annual or quarterly sales tax returns in those 50+ jusrisdictions, whether or or not any payment is due.
The costs of compliance will be huge. A real nightmare. I’ll bet quite a few small entrepreneurs will exit business as a result.
(And BTW, I’m extra-glad I got out of interstate sales while the atmosphere was still friendly!)
>> Small businesses will use simple programs that will apply the taxes <<
Simple? Have you ever had to file separate tax returns in 50 different states?
Ain’t one bit simple.
You must be from a state with a low sales tax.
I’m in California. My local sales tax rate is 8.5%. But, I also tend to make small purchases, so the sales tax, if charged, would be small as well. Some people mentioned buying big ticket items on which sales tax could be large. I have never bought such items online, so I never confronted the issue with a big ticket item.
“Small businesses will use simple programs that will apply the taxes—it’s already baked into most prevalent platforms. Yes, it’s a pain, but anyone who expects any government to miss any opportunity for increasing tax revenue is living in a fantasy.”
There are thousands of different sales tax rates in America. No business without a fulltime bookkeeper is going to be able to deal with it.
Always remember that a sales tax benefits only a greedy gov’t. entity somewhere. The consumer & retailer get nothing from it. Oh,wait.....that’s not quite right because some of that sales tax money might find it’s way to a school district that’s teaching mostly the wrong things anyway.
It’s all automated for state taxes, and unless you are Obama, that number is still 50, plus DC. I don’t think it includes municipalities at this point. Either way, it’s all just another entry in a simple database and the service costs will be passed to the consumer. It will be one chunk of code thrown into every storefront.
Whether there’s one rate or one million really has no effect on the system. It’s foolishness as usual—compliance costs will ultimately negate any increases. As Einstein said, “the difference between genius and stupidity is that genius is finite.”
They might put the onus on eBay and have them factor in what state the seller is in and withhold taxes from the sale, holding it in an escrow account, which them can be drained by the various states.
There will probably be a "businesses that don't sell more than $X amount will be exempt" clause in there some where.
As a small, sometimes seller there, that's my hope. If not, I am done with it.
Having sales tax being charged does not affect finances of a brick and mortar store. The store does not make a profit nor does it take a loss on sales tax. Sales tax becomes a factor in a sales when the said tax is in the hundreds or thousands of dollars added to the sales of such item. For most a sale on a 100 dollar item would mean sales of 7 dollars the retailer collects as a proxy for the government. The retailer cannot do anything with this money because after collection from the consumer it must be stored in such a way the government then collect it - every single dime of it. Think of sales tax like one would have an escrow account to pay home insurance. The money goes into an account until such time as it needs to be collected by the insurance company.
A business that says they are affected by the sales tax is straight up lying to the shareholders and consumers and making excuses to create a distraction from the real reason, whatever these may be, why overall sales are bad.
Sales tax is imposed by the government placed on the sale of an item or items, collected by the seller for later collection by the government. The effect it has on the sales is minuscule in nature up to a price point in which the sales tax is quite noticeable by those making up to a certain point. For those who do not worry about money in the slightest, sales tax is a non-issue.
If you think I am wrong, take a look at a taxable item under 100 dollars. Did you even consider the tax into the decision of acquiring the item? If you did it was probably only to make sure you have enough money to cover the transaction and take the item home.
Sales tax is not the reason why brick and mortar stores are failing.
And now we know why the 0 got all that ammo for the irs and other fed agencies...
Ebay will be killed dead
I feel sick to my stomach and pissed off if I go to order something on Amazon and the tax appears.
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