The Internet Sales Tax Is Too Late to Help Best Buy's Stock

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Having cratered in value as the effects of "showrooming" decimated sales, Best Buy's (NYSE: BBY  ) stock has staged a remarkable recovery in 2013, already having more than doubled in value. With the passage in the U.S. Senate of the so-called Internet sales tax -- its formal name is the Marketplace Fairness Act -- investors are hoping this trend of greater growth (or at least stock price appreciation) can continue if the playing field is leveled for all retailers.

As is well known at this point, online retailers such as (NASDAQ: AMZN  ) and eBay (NASDAQ: EBAY  ) had their growth potential early on bolstered by their ability to avoid paying sales taxes on purchases made in states where they didn't have a physical presence. Best Buy, Circuit City, Sixth Avenue Electronics -- retailers in general, and not just sellers of electronic consumer goods -- were placed at a competitive disadvantage because the prices consumers paid were elevated relative to those paid at online sellers.

A uniform application of state sales taxes, it was argued, would make the system more fair and even simpler while also going a long way to shoring up the coffers of financially strapped states. It's estimated between $22 billion and $24 billion will flow annually into state treasuries.

It seems a win-win-win situation in terms of fairness, equity, and financial stability, so what's not to love?

First, the revenue side of the states' financial situation has never been the issue: They collected almost 2% more in 2012 than they did in 2007 and 35% more than they did in 2002. According to the U.S. Census Bureau, states collected $242.7 billion in sales and gross receipts taxes in 2012, up from $238.3 in 2007, and $179.7 billion higher than in 2002. Looked at another way, over the past decade, state sales taxes have grown at a compounded annual rate of 3.4%, a period marred by the Great Recession, yet still they continued to rise.

So the idea that states aren't getting their "fair share" is simply bogus, and no one really thinks that sending more money to state politicians will actually be used to plug budget holes and won't just finance more new spending programs, exacerbating an already dire situation. Less spending, not more revenue, is the cure for the states' ills.

Second, the companies that had been most vociferous in their opposition to the sales tax -- think Amazon and eBay -- are now on board. When they were growing and striving to make their mark in the marketplace, they were staunchly opposed to having their knees cut out from under them. Now they want to cut the knees out from under their rivals. 

The sales tax is no longer a factor for Amazon. Its warehouse system is already a more efficient system than those offered by the bricks-and-mortar types because they can be located in low-cost areas without the need for staffing with sales personnel and the other trappings a retail operation has.

It also serves as a barrier to competition. While the bill as passed exempts the small mom-and-pop shops with less than $1 million in sales, the real threat to Amazon, eBay, and even Best Buy is in the growing businesses with sales in excess of that level but without the wherewithal to negotiate and lobby with state politicians on carve-outs, as Amazon has been able to do. 

And the leveled playing field -- should the sales tax make it through the House of Representatives -- won't help Best Buy, because it's already so far behind in the score. Having largely decided that its future is in mobile phones and will devote most of its resources toward that end, the electronics big box has openly embraced the concept of showrooming.

At this stage of the game, Amazon has played both sides of the field, and it will be the consumer -- and taxpayer -- who lose out if the Internet sales tax becomes law.

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  • Report this Comment On May 12, 2013, at 2:11 PM, prginww wrote:

    If we are to be fair, B&Ms should do it also.

    With 9600 sales tax jurisdictions in the US, accounting firms are pricing this at $1.50 or more per sale or at an initial cost of as much as $7,300 or more. Even if free, there is a cost of manpower and resources to interface this software which is not true for the Brick and Mortar stores. If this is easy, then B&Ms should do it also. They will need to ask for ID and charge sales tax based on the customer’s address on every sale. It is only fair!

    This is a USE TAX not sales tax

    A USE TAX views a state’s population as a revenue stream, while Sales Tax supports the dealer’s community where the business made the sale. If the states agree to get rid of use tax and accept that the sale takes place at the web site as they do with B&M sales, then everyone gets a fair and level playing field. States would need to compete for these internet businesses, but they stand to make a lot more than they do through the unlikely named Marketplace fairness act. Dealers deal with 1 jurisdiction, not 9600.

    It is easy, Sales Tax takes place when you visit and buy at a store on line or on Main Street! Let Dealers charge sales tax from their jurisdiction as sales tax was intended, to provide police and fire protection, roads, educational support and more to their communities to help build business that creates sales.

    Dealers do this now for instate sales. This adds no new laws, no new taxes. It repairs the system and supports the communities that support the dealer. It does not even affect the commerce clause.

    Buyers choose where they buy and what they pay. If they do not like a tax from a jurisdiction, they vote with their feet and buy elsewhere on line or on Main Street.

    Please visit Ask questions, make comments and help us bring this question around to one that makes sense for everyone.

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