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.
How about zero-ing out the taxes on retail stores? That would be “fair”, too.
So I’m guessing it’s not about “fairness” now, is it?
I’m probably a minority on this sales tax on internet sales issue.
I have bought many items online, both from companies in my own state, which charged sales tax, and from companies in other states, which did not charge sales tax.
I also buy many items in brick and mortar stores, which charge sales tax.
My point is, the sales tax issue never entered into my decisions about buying products in a store vs. online, or intentionally choosing an online retailer from another state in order to try to avoid the sales tax.
My question is, how much does the sales tax issue really influence consumer behavior online?
As I said, maybe I’m just in the minority on this one.
Isn’t that taxation without representation?
Enforcement of these provisions will involve a bureaucratic nightmare, with tax agents in distant states or even in foreign countries, making sure the state government has extracted its share from the commerce enacted at an arms’-length transaction, and still there will be innumerable transactions that will slip through the cracks.
>>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.
Oh, BS. TRU died becuase of changing demographics, preferences, economics, and location. The internet helped, but mostly because people just don’t have time for the quarterly trek to TRU that I remember from my childhood. Back then, the store was crawling with kids running around wide-eyed in wonder with both parents in tow reminding them that they can only pick ONE toy each and that most of the toys chosen would be better if “you asked Santa for that.”
Walk into a TRU a year ago and the kids are bored as they play with their phone and parents are trying to get them to look at a real toy.
What about sellers on sites such as EBay? Are they registered as a business in order to collect sales tax, even in their own hometowns?
I suspect a lot of sales will still escape sales tax, because of the difficulties involved in tracking down sales and some auditor making sure that tax was paid.
“”””Walk into a TRU a year ago and the kids are bored as they play with their phone and parents are trying to get them to look at a real toy.”””””
True dat. Couches and tv’s are the only thing kids need these days.
yep times have changed.
Kids nowadays play with phones and video games.
Do kids nowadays play board games anymore, for example?
Do kids play outside and ride bikes and play sports for fun, not sports in organized leagues, but sports just for fun?
Its about time, its not gonna inconvenience mom and pop. Plenty of software out there which will quickly adapt. Nothing remains static in consumer purchasing, ecxept price and convenience, convience online, but not necessarily price.
Speaking in regards to my own consumer behavior, I generally only resort to online shopping when there's something I want/need and can't find locally. Depending on the vendor and shipping costs (if any) I rarely see any price advantage to shopping online if the item is available. Also, it's worth a little extra to me to physically examine an item, article of clothing etc. before purchase, as well as the immediacy of taking possession of the item at the point of sale rather than waiting a couple days.
My problem with this ruling is not so much with the impact it will have on the consumer so much as it will the vendor. A little old lady who wants to turn her jewelry making or ceramic hobby into a little online business is now going to have to retain an accountant to collect and track and file sales tax in a myriad of states. This will benefit bigger vendors who may already have an army of accountants on hand and a physical presence in a multitude of states, but it will discourage if not crush the aspirations of small craftsmen, technicians etc. that want to bend their goods and services online.
Let’s say - for just an “augenblick” (blink of the eye) - that his “tax” helps the brick & mortar stores compete...fine.
But, there are still other factors that promote shopping on line, like price, convenience, delivery, SAFETY (muggings at the malls), and availability.
For instance, a “mulching blade” for my old Snapper mower costs $70+ at the local Snapper dealer - on line, it’s about $30. I’ll pay the I-tax on that, and still save money.
Then, there’s customer service - on line shopping means not having to deal with low-IQ, ignorant, and rude salespeople, who think running a digital cash register (with *pictures* on the keys) makes them an instant holder of a Phd.
On-line shopping has lots of advantages, but I guess there’s always the “porch pirates”, and “lost in the mail” problems.
Hey, snowflakes...life ain’t perfect.
“.... Almost no where in its exposition of the company’s failure does it examine the underlying problem: “
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The biggest part of the problem is that “Toys were US” was always the high cost place to buy and the middle class has been squeezed for decades ,, there is no more “disposable income” ,, combine that with 50,000,000+ missing children due to the availability of abortion and the end was inevitable for them.
Internet sales tax?
How about catalog sales tax?
And ALL interstate sales?
I don’t see how their decision ONLY permits it to be applied to sales initiated via the internet and not snail mail or a phone call.
It’s a bad decision and overrides hundreds of years of precedence.
Walmart and Amazon should already be charging sales taxes on all sales because of their brick and mortar, offices, and warehouse, and whole foods, and... presence in most states.
Ebay will just impose the taxes on your sales.
They will already report your payments to the IRS if you get over $10,000 in a year. And no, that doesn’t tell the IRS how much of that $10,000 was net sales, only the gross (including postage and handling cost expenses)
it used to be that way this sales tax thing has not been around forever.
So does EBay act as the seller; is EBay then going to administer sales tax for their members? I don’t know how EBay is structured or the legal relationship between EBay “corporate” and all the individual sellers on EBay.
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