Supreme Court clears path for states to collect online sales tax

Supreme Court-web

June 2018—

HFA member Cynthia Heathcoe was working with a customer this spring when the shopper pulled out her cell phone and began looking for the same sofa online. Heathcoe knew what was coming next.

“She asked me if I could match the price and not factor in the sales tax since she wouldn’t be paying any online,” recalled Heathcoe, owner of Contemporary Living in Lake Park, Fla. It took some work and lowering her price, but Heathcoe made the sale. “I didn’t make much off the sale, but then I didn’t want to lose her as a customer either,” said Heathcoe. “It was not a good experience, but it’s one I go through over and over again.”

All of which made last week’s Supreme Court ruling even sweeter for Heathcoe and other furniture retailers.

By a 5-4 vote, the high court ruled that states can collect sales taxes on purchases regardless of a physical nexus. The ruling, much anticipated, but long awaited, was met by cheers from HFA members who have long complained that they are disadvantaged by having to charge sales taxes while many of their online competitors do not.

“I’ve got goosebumps,” said Heathcoe after learning the court’s ruling. Heathcoe said she “loses thousands of dollars every year to the internet. It might just happen once or twice a month, but that’s lost revenue for me and it happens more times than people think.”

The high court’s ruling doesn’t require states to collect sales tax but clears a legal path for them to do just that. States have said that they are missing out on tens of billions of dollars in annual revenue under a 1992 Supreme Court ruling that helped spur the rise of internet shopping.

That ruling, as well as one handed down 51 years earlier, prevented states from squeezing sales taxes from sellers with no physical presence in those states. At the time there wasn’t nearly as much at stake, and the court’s rulings largely benefited mail-order catalogs. Of course, times have changed. Today the National Retail Foundation says more than half of American’s shopping budget is allotted to online.

The HFA has been advocating for online sales tax parity specifically for several years through advocacy fly-ins, calls to action and state-level meetings with legislators. The Association and its members worked in coalition with other retail trade groups as well.

“Well it’s about time,” says HFA member Wogie Badcock, Badcock Home Furniture & More, Mulberry Fla. “The home furnishings industry has been fighting against the unfairness brick-and-mortar retailers face since the early 1980s when trans-shippers avoided taxes. The situation has been the same just with a newer platform of the internet. All brick-and-mortar stores ever asked for was a level playing field; and now we’ll get it.”

“This decision is a great victory for our members and a testament to their diligence in seeking reform,” says HFA CEO, Sharron Bradley. “We’ve put a lot of time and effort into this issue and it’s rewarding to see it finally move forward. We’re pleased the Supreme Court recognized that it’s time to treat all retailers equally whether they’re brick-and-mortar, online or remote.”

Writing for the majority, Justice Anthony M. Kennedy said the previous tax law for online retailers had distorted the nation’s economy and had caused states to lose annual tax revenues of as much as $33 billion collectively.

“Quill puts both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers,” he wrote. “Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own.”

HFA member Larry Zigarelli, president and CEO of FFO Home’s 51 stores, said the ruling was not a surprise. “This has long been a case of the law catching up to the marketplace,” he said. “Consumers have gotten away with not paying taxes for online purchases, but the reality is they expect to pay taxes. The only thing that’s surprising about this ruling is that it’s taken this long.” Zigarelli was part of the HFA advocacy group that met with legislators in Washington this spring.