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South Dakota asks Supreme Court to revisit online sales tax but will it make a difference for retail?

October 4, 2017Jake DiMare

This past Monday, October 2nd, 2017 South Dakota Attorney General Marty Jackley issued a press release announcing his office filed a petition asking the United States Supreme Court to review the South Dakota Supreme Court decision in the recent online sales tax case, State of South Dakota v. Wayfair, Overstock, and Newegg. In it, Jackley asks the U.S. Supreme Court to overrule the physical-presence requirement ruling in Quill Corp. v. North Dakota, (1992) which currently prevents the State from requiring out-of-state retail outlets to remit taxes for sales made within South Dakota.

“The retail landscape significantly changed with the inception of the internet and access to online shopping. Federal law currently shields out-of-state businesses from remitting the same taxes as South Dakota businesses.  Today the State asks the U.S. Supreme Court level to the playing field,” said Jackley.

A quick check on SCOTUS Blog revealed Jackley’s petition has yet to land on the Justices’ schedule. It may be premature for Amazon and other online-only e-commerce markets to panic, but influential organizations including the National Retail Federation (NRF) and Retail Industry Leaders Association (RILA) have pushed hard for change in this area for a decade. It probably wouldn’t hurt for Jeff Bezos to show up at an upcoming NRF conference.

Quill Corp was a catalog retailer, and back in 1992, the Supreme Court reasoned that calculating and remitting sales taxes for jurisdictions across the country was too burdensome for catalog retailers selling their wares to consumers in multiple locations. But this decision was made 3 years before Jeff Bezos started Amazon in his garage in Seattle. Much has changed since then, policies are likely to follow.

“The artificial price advantage for online retailers that the United States Supreme Court unknowingly created in Quill has done significant damage to thousands of brick and mortar retailers, and meant billions in lost revenue for state and local governments in the intervening quarter of a century,” said White. “Although the Quill Court correctly noted that Congress could use its Commerce Clause power here, Congress has not done so, and the increasingly partisan divide makes that possibility ever more remote. It is time for the Court itself to face and reconcile the harms created by its own Quill rule,” said Deborah White in a separate press release. White serves as General Counsel of the Retail Industry Leaders Association.

Breaking a tax break won’t save retail

If and when change does come in this area it is likely to cause online-only markets a bit of angst. However, it’s probably going to be a case of too little, too late, to save the many retailers already underwater today. For many of the traditional retailers who remain, I wouldn’t rule out restructuring and self-disruption to protect them from the likes of Amazon and other, innovative new business models that rely less on physical presence and more on online transactions.

Last week Shop.org 2017, the NRF’s annual event focused on digital, was sparsely attended. Speakers mostly avoided the topic of online retail, while focusing on the in-store experience. I guess you have to work with what you have, but I couldn’t help but notice Shop.org’s parallels to the overall abdication of digital in retail. Many analysts will point out that Amazon, the world’s biggest threat to traditional shopping, has only reached 5% of market share in retail. Of course, this point ignores that Amazon’s market value is more than Walmart, Target, Best Buy, Macy’s, Kohl’s, Nordstrom’s JCPenney, and Sears combined -as well as what Amazon can do with the strength of that position.

Amazon’s retail ambitions are pretty clear based on the recent Whole Foods acquisition. While grocery alone is a nearly $800 billion annual market in the US, Whole Food’s foot traffic increased 33% following the Amazon deal, and Wal-Mart regulars accounted for the most significant percentage of first-time customers, according to the research firm Thasos Group. While this is a tiny fraction of the retail giant’s customer base, even a small amount of defectors is a concern for Wal-Mart who will likely struggle to position themselves against Amazon in the next frontline of this heavy-weight fight: Fresh grocery delivery.

Meanwhile, Amazon’s retail ambitions continue to develop with more recent announcements. First, the truly bizarre decision by Kohls to accept Amazon returns at 82 locations in Los Angeles and Chicago and get them back to Amazon warehouses at no cost. While this isn’t exactly like introducing your hens to the local fox, it sure looks like a confusing act of desperation.

At almost the same time, former giant Sears signed with Amazon to cross-sell key merchandise including the Echo, and certain appliances. In exchange, Amazon will get to sell Kenmore products. Fox, meet the hens.

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