Big box retail leader Best Buy sounded the alarm in 2012 when it announced it was putting an end to “showrooming” by offering price-matching guarantees — an offer that included competitive matching for other retail outlets and online sources.
The widespread showrooming phenomenon allowed consumers to look at products in stores like Best Buy, only to make their final purchases through online outfits like Amazon.com, which made their success through advertising the same products at tax-free prices that retail outlets couldn’t match.
Best Buy wasn’t the only chain to alter its business plan in the face of online competition. Target soon followed in the store’s footsteps, claiming it, too, would offer competitive prices in line with its online rivals. While it was a move to keep consumers making their way to the checkout line, it certainly wasn’t ideal for the overall sales plan.
Best Buy reported 4th-quarter earnings in March, claiming a narrow loss — still, its first increase in U.S. sales in more than a year.
Now, Congress is making a move to change what some see as an uneven playing field, proposing legislation that would require online retailers, like Amazon.com, to live up to the same tax standards as traditional stores.
A bill moving through Congress would give the go-ahead for states to start taxing purchases made through online providers, who currently are able to sell products at prices free from state taxes.
The current system is a bonus for consumers looking for the cheapest option, yet for retailers — big box or otherwise — the implications for business is damning.
Lawmakers weigh political moves, financial supports in crooked split
Democrats have emerged as the key supporters of the Marketplace Fairness Act, which Monday passed the Senate by a vote of 69-27. Republicans have remained silent, careful not to upset big box retailers and small business, and are equally cautious about upsetting free market consumers who prefer tax-free online options.
A breakdown of the votes show Republicans were split. For example, Sen. Lindsey Graham (R-S.C.), a leader of the Congressional Republican movement, voted in favor of the act, while his colleague Sen. Tom Cruz (R-Texas) went the other way.
In terms of political donations, it was also a mixed bag. While Sen. Patrick Toomey (R-Penn.) was listed the fourth-largest recipient from interest groups in support of the Marketplace Fairness Act, he voted against it. He was joined by only seven other Republicans, according to Open Congress statistics.
The list of those who received funding from interest groups opposed to the legislation also varied greatly, a near-even split between Republicans and Democrats. John McCain (R-Ariz.) landed on that list, yet voted in favor of the bill.
A new battle in the House
There were a few Democrats who strayed from their partisan pack, including Sen. Max Baucus (D-Mont.), yet for online companies and their lobbying apparatus, the target is now on Republicans to reverse the tide in the Senate.
“By wiping away geographic limits to state tax authority, the bill would impose serious burdens on Internet retail and undermine basic tax policy principles,” R Street, a free market advocacy group and national think tank, stated in a press release. “It’s now up to conservative leaders in the House of Representatives to stop this bad legislation in its tracks.”
The online retail industry has on its side the infamous Grover Norquist, founder of Americans for Tax Reform, who was made a household name through the “pledge” he created, requiring signers to vote against any form of tax increase.
“‘It’s free money,’ they think. But by opening it up, the voters in their states will get mugged by 49 tax collectors in the other states,” Norquist states on the Americans for Tax Reform website.
The Retail Industry Leaders Association, the trade arm of big box retailers like Target and Best Buy, had a different take. The 200 retailers it represents account for more than $5.1 trillion in sales a year stemming from sales made in more than 100,000 brick-and-mortar stores.
“For too long the Main Street retailers that are an integral part of their communities have faced tax rules that put them at a disadvantage to their out-of-state, online-only competitors. The Senate has voted to ensure that the market, not government, determines winners and losers,” Bill Hughes, the organization’s vice president, said in a press release.
Now, it’s on to the House for both sides of the ideological aisle.
A House version of the bill already has 65 co-sponsors. It has yet to make it out of committee, however. According to an article in the Star Tribune, which serves Minnesota’s Twin Cities, House Majority Leader Eric Cantor did not include the Marketplace Fairness Act in the May agenda. Eric Cantor’s website’s blog section is void of any information or discussion regarding the Act.
Meanwhile, some House members are ready to go, eager to pass a bill into law that creates a levelled playing field — which, to them, counts as “common sense.”
Rep. Collin Peterson (D-Minn.) is one of them. In an interview with the Star Tribune, he questioned the motives behind Republicans moving away from the issue, calling out their allegiance to the Norquist pledge over an obligation to serve small business.
“We’ll see just how crazy some of these Republicans are,” he said.