Supreme Court decision is a win for brick-and-mortar retailers

July 20, 2018

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The decision

Last month, the Supreme Court ruled that states have the right to collect taxes from online sales, regardless of whether those retailers maintain a “physical presence” in that state. The decision in South Dakota v. Wayfair, Inc. won’t immediately apply to online purchases, but paves the way for states to pass their own laws requiring online retailers to remit tax.

For retailers, the ruling is a major victory. “This levels the playing field with large out-of-state companies,” says Brandee Lepak, co-owner of Global Bikes and board chair of the National Bike Dealer’s Association (NBDA). “Not having to pay sales tax gave these companies up to a 10 percent advantage over brick-and-mortar shops like ours. At the end of the day, it’s about contributing to the communities where you conduct business.”

Action from the bike industry

PeopleForBikes and NBDA have been working together for several years to rally retailers in support of federal legislation that would facilitate online sales tax collection, including sending a letter to Speaker of the House Paul Ryan signed by more than 500 retailers and organizing fly-ins to Washington, D.C., that provided independent bike retailers the opportunity to testify before Congress.

“I’ve visited the Hill a number of times on behalf of cycling causes,” says Mike Jacoubowsky, owner of Chain Reaction Bicycles and an NBDA board member. “There is no question that showing support of [business owners’] role as a tax-paying part of the cycling infrastructure opened a lot of doors, and helped move the needle on this important issue.”

South Dakota v. Wayfair, Inc.

The Supreme Court decision is the culmination of a case brought by South Dakota against e-commerce retailer Wayfair, Inc.. The lawsuit ultimately saw the overturning of a 1992 ruling in Quill v. North Dakota that mandated that a business have a physical presence in a state for that state to require the business to collect and remit sales tax. The decision in Quill opened the door for Congress to change this rule through legislation, but legislation has not be enacted into law.

Justice Anthony M. Kennedy, who issued the court’s opinion, acknowledged that online business has evolved dramatically since the 1992 ruling. “[T]he internet’s prevalence and power have changed the dynamics of the national economy,” he said. He also stated that the physical presence rule was unfair and allowed remote sellers to escape an obligation to remit a lawful state tax. “It is unfair and unjust to those competitors, both local and out of State, who must remit the tax; to the consumers who pay the tax; and to the States that seek fair enforcement of the sales tax, a tax many States for many years have considered an indispensable source for raising revenue.”

What’s next?

Many states are already preparing to pass legislation requiring online retailers to remit state sales tax and additional action at the federal level is probable. “There will likely be an effort at the federal level to move legislation forward that creates a framework under which states could require online sales tax collection, making it easier for companies to comply and remit tax,” says Katy Hartnett, PeopleForBikes’ director of government relations.

In the meantime, independent bicycle retailers are celebrating a competition field that’s a little more balanced. And they’re ready to take action on behalf of the industry as more issues challenge bike businesses, including recent tariff proposals.

“NBDA and PeopleForBikes will continue to monitor issues that affect bicycle retailers,” Lepak says. “We are incredibly pleased with the Supreme Court decision and hope that our communities and small businesses will continue to thrive.”

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