SALES TAX SLICE: BLACK FRIDAY’S ANEMIC BRICK-AND-MORTAR SALES UNDERSCORE STATES’ REMOTE SALES TAX CONCERNS

Black Friday

Brick-and-mortar retailers did not do so well on Black Friday. According to ShopperTrak, brick-and-mortar stores received 1 percent fewer visits this year than last year during Thanksgiving and Black Friday. Traditionally a rowdy celebration of brick-and-mortar shopping, Black Friday appears to be giving way to increased consumer preference for online shopping. This year, online sales overtook in-store sales during the Thanksgiving-to-Sunday weekend, with 44 percent of consumers shopping online and 40 percent doing so at brick-and-mortar retail locations. The trend has continued into this week with Americans spending a record $3.45 billion online on Cyber Monday.   

With such a major shift towards online sales, it is evident why states have been eyeing the tax revenue that they are losing from these sales. As Bloomberg BNA’s David McAfee reported Nov. 21, president-elect Donald Trump may be sympathetic to these concerns (subscription required). During his campaign for president, Trump criticized Amazon for not collecting sales, claiming that the situation is hurting brick-and-mortar retailers. In June, Trump revokedThe Washington Post’s press credentials from his campaign, claiming that Amazon CEO Jeff Bezos purchased the paper to gain political influence that would benefit Amazon. Notwithstanding the fact that Amazon actually does collect sales tax in a majority of states, Trump appears predisposed to legislation under which states could require online retailers with no physical presence in the state to do so. 

The most likely legislation would, of course, be the Marketplace Fairness Act (MFA). While it received more support from Democrats, the MFA was approved by a bipartisan Senate vote of 69 to 27 in 2013. It even received the support of 18 Republican Senators out of the 39 in the 113th Congress who signed Grover Norquist’s Taxpayer Protection Pledge. Perhaps they realized that permitting states to broaden their sales tax base might enable them to lower other taxes, like income and property taxes. The MFA later died in the House, and it seems unlikely to be put up for a vote in the outgoing 114th Congress.   

If Congress does not pass the MFA, the Quill physical presence nexus standard may still be overturned judicially. As my colleague Rene Blocker discusses in detail, two petitions for certiorari asking that it be overturned are currently being considered by SCOTUS.

But will taxing online retailers really do anything to revive the glory days of brick-and-mortar retail about which Trump and others seem to be waxing so nostalgic? As Adam Ozimek of Forbes points out, a study of consumers’ spending found only a modest 2-percent increase in brick-and-mortar sales after Amazon began collecting sales tax in five states. Thus, it seems that many consumers prefer online shopping regardless of whether sales tax is collected. If so, it may be that brick-and-mortar stores represent a version of America that many no longer want. Growing distaste for Black Friday crowds may indicate just this.       

Does passage of the MFA seem likely next year? What, if anything, is holding back the House? Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn

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