As a small specialty retailer in Arizona, we put tremendous effort into connecting with and supporting our community. We have very knowledgeable staff who love to help runners and walkers determine which shoes work best for them, troubleshoot overuse injuries and train optimally for running events. We have been recognized as one of the top specialty running stores in the country the past 3 years. We are happy to compete against other stores, both online and brick-and-mortar, on the basis of service, convenience and price. However, there is one thing which we are legally prohibited from competing on: sales tax collection.
As a brick-and-mortar business we are required to collect sales tax on all purchases in our stores, and that averages over 8% in Arizona. When an Arizona resident purchases the same merchandise from an online retailer located outside of the state, sales tax is not collected. As the manufacturers’ prices are usually identical across competing stores, and shipping for running shoes is virtually always free, the only difference in bottom line cost between our store and our online competitors is the sales tax. For a $120 running shoe, the total sales tax ends up being about $10 which is enough to motivate many customers to shop online instead of at a local store. That effective discount enjoyed by our competitors is essentially mandated by current law.
We have found that a customer can stand in our store, order shoes on their smartphone from an online competitor and pay 8% less than the law allows us to charge even though the list price is identical in our store. If this were a 100 meter running race, it would be equivalent to allowing some runners to start eight meters ahead of their competitors. When the marketplace is distorted by laws that give one group of businesses an advantage over competing businesses, that is the epitome of unfairness and it’s long overdue to be rectified. This issue has nothing to do with brick-and-mortar retailers complaining about competitors that sell products at lower prices. This is all about existing law which mandates that brick- and-mortar retailers collect taxes while their online competitors have no such requirement. Local retailers just want the government to stop distorting the marketplace with unequally applied sales tax laws.
Even though we are primarily a brick-and-mortar business, we have had an online store since we opened eight years ago. The most common complaint I’ve heard from online retailers is that requiring them to collect sales taxes would be too difficult and costly because there are thousands of different sales tax jurisdictions around the country with differing rates. Such complaints are vastly exaggerated. An excellent analogy to calculating and collecting sales tax is calculating and charging shipping rates. Most online stores offer various shipping options which involve more variables than sales tax does. For example, shipping cost is determined by weight, shipping address, method of shipment, box size and other variables. Due to its complexity the calculation is often done by integrating the website directly with the computer systems of the shipper such as FedEx, UPS and the United States Post Office. The same basic technology would be used in the calculation of sales taxes. Opponents of efairness legislation often make it sound as if online sellers would need to manually look up the rate for each transaction. They don’t need to do that for calculating shipping rates and won’t need to do it for sales taxes thanks to modern software and computer capabilities, which ironically enough is the very foundation on which they built their businesses.
Opponents of efairness legislation claim that modifying their websites is an enormous challenge. Yes, there is an element of truth there, but to be an ecommerce business by its very nature requires the ability to upgrade a website as technologies change and evolve. For example, just a few years ago there wasn’t very much emphasis on making websites adaptable to viewing on smartphones and tablets. With the growth of those technologies, being able to adapt an ecommerce website is essential. In fact it’s now so critical that on April 21, 2015 Google started penalizing non-mobile friendly websites in their search results rankings. That is a deadly penalty to pay for an online retailer that is unwilling to evolve their website. It’s not uncommon for an online store to do a complete makeover of their site and migrate to a completely different platform in order to keep up with evolving technology.
In 2013, we went through the migration process ourselves as we realized our old platform was incapable of becoming truly mobile friendly. One of the criteria in selecting a new platform was that it be capable of integrating with sales tax collection services so that we would be prepared when such a law goes into effect. Any online retailer that makes a platform change or has done so in recent years while ignoring this facet is woefully naive. If a small brick-and-mortar retailer (such as us) with limited resources and a one person IT department can plan for an eventual remote sales tax collection requirement, then so can the more sophisticated online stores.
Online businesses claim that implementation of efairness legislation would cause them significant harm. On the contrary, brick-and-mortar businesses have already been placed at a disadvantage for many years as the government subsidized discount scheme enjoyed by online stores has unfairly encouraged consumers to shift more of their shopping away from community stores. Local stores simply want a fair shot at competing with their online competitors based on service, convenience and price. To refer back to the 100 meter dash analogy, we’re asking to have our competitors stand on the same starting line so that we can have a fair competition in the retail marketplace. Let the strongest businesses prevail based on their own merits, not on an outdated tax system.
Lance Muzslay is the co-owner of Sole Sports Running Zone in Tempe, AZ.