Supreme Court to revisit Internet sales tax ruling
In a decision cheered by traditional retailers and many states, the U.S. Supreme Court agreed to revisit a 1992 decision in which it ruled that states could only require remote sellers to collect sales taxes if they had a physical presence in the state.
The Court said it would hear an appeal from South Dakota (South Dakota vs. Wayfair) that the current “physical presence” rule is outdated and unfair in a time when Americans do much of their shopping online. In 2016, South Dakota passed a law requiring out-of-state sellers to collect and turn over sales tax to the state. The state’s highest court struck down the law, citing previous Supreme Court decisions.
“No one could have foreseen in 1992 the ways that Internet retail would remake the American economy in 2017,” South Dakota argued in court papers.
Online retailers Wayfair Inc., Overstock.com Inc. and Newegg Inc. are opposing South Dakota in the case. They argue that the largest online retailers, including Amazon, already collect sales tax in every state that has a sales tax.
The National Retail Federation said it welcomed the decision by the Court, but also urged Congress to address the issue through federal legislation. The association believes that even if the court rules in favor of a more updated sales tax policy, federal legislation is necessary to resolve details on how collection would take place rather than leaving it to each of the states to interpret the court’s ruling.
“The fact that the Supreme Court has decided to reconsider its outdated ruling is encouraging, and we are hopeful it will lead to a positive outcome that reflects the realities of 21st century commerce,” NRF president and CEO Matthew Shay stated. “Congress should not sit on the sidelines as the Supreme Court considers this case. It’s time to pass legislation to settle this critical issue once and for all. Even if the court rules in favor of a modern sales tax policy, legislation will still be needed to spell out how that would work.”
In November, NRF filed a friend-of-the court brief urging the Supreme Court to take up an appeal brought by the state of South Dakota, saying the 1992 Quill Corp. v. North Dakota decision is outdated. In Quill, the court said sales tax laws across the country were too complicated for retailers to know how much tax to collect unless they were physically present in the customer’s state. NRF argued in the brief that computer software has made that concern obsolete today.
“Antiquated sales tax collection rules have resulted in an uneven playing field that’s making it harder for Main Street retailers to compete in today’s digital economy,” said Shay. “This is a basic question about fairness, which all of our members deserve whether they’re selling in stores or online.”
NRF: Strongest holiday since end of Great Recession
Low unemployment and confident consumers helped fuel one of the most robust holiday shopping seasons retailers have seen in years.
Retail sales during the combined November and December period jumped 5.5% in 2017 to $691.9 billion, the largest increase since the 5.2% year-over-year gain in 2010 after the end of the Great Recession, the National Retail Federation said. The total, which excludes restaurants, automobile dealers and gasoline stations, includes $138.4 billion in online and other non-store sales, which were up 11.5% over the year before.
The results topped the NRF’s forecast of $678.75 to $682 billion, which would have represented a 3.6% to 4% increase. NRF had forecast that non-store sales, would grow between 11% and 15% to between $137.7 billion and $142.6 billion.
With unemployment at a 17-year low, a pickup in income, strong consumer confidence and a rising stock market, NRF chief economist Jack Kleinhenz said a number of factors provided a strong base for spending during the holidays. The season also came on the heels of the three strongest monthly year-over-year gains for retail sales since the fourth quarter of 2014.
“The economy was in great shape going into the holiday season, and retailers had the right mix of inventory, pricing and staffing to help them connect with shoppers very efficiently,” Kleinhenz said. “The market conditions were right, retailers were doing what they know how to do, and it all worked. We think the willingness to spend and growing purchasing power seen during the holidays will be key drivers of the 2018 economy.”
NRF’s numbers are based on data from the U.S. Census Bureau, which reported Friday that overall December sales – including automobiles, gasoline and restaurants – were up 0.4% seasonally adjusted from November and 5.4% year-over-year.
There were increases in every retail category except sporting goods during the holiday season, which NRF defines as Nov. 1 through Dec. 31. Specifics from key retail sectors during November and December combined include:
• Building materials and supplies stores increased 8.1% unadjusted year-over-year.
• Furniture and home furnishings stores increased 7.5% unadjusted year-over-year.
• Electronics and appliance stores increased 6.7% unadjusted year-over-year.
• General merchandise stores increased 4.3% unadjusted year-over-year.
• Clothing and accessories stores increased 2.7% unadjusted year-over-year.
• Health and personal care stores increased 2.2% unadjusted year-over-year.
• Sporting goods stores were down 0.5% unadjusted year-over-year.
Analysis: Retail growth in 2018 will be ‘above average’
Over the past week, the welter of holiday trading updates has hinted that retailers enjoyed a robust December. Today’s strong retail sales numbers lend weight to that view.
At total level, year-over-year growth of 4% in December does not seem all that impressive. Indeed, it is a little way below the average monthly rate for 2017 and quite a bit below the 6.6% uplift recorded in November.
However, the figure is affected by weak sales of autos which were up by only 0.4% over the prior year. When this, and other non-core categories are removed, pure retail sales increased by 4.6%. This represents a significant increase over the average monthly 3.8% uplift for 2017 and puts December as the third best month for retail growth of the year.
Growth within retail was broad-based with most categories performing well. Home and furniture stores led the way with 7.5% growth over the prior year. Some of this is a consequence of a robust housing market, which continues to spur home spending, but some is also the result of more gifting of home products. Our consumer data showed that small home-related items like decor and accessories were one of the most popular gifting categories this holiday season.
Electronics, which has been relatively flat for most of 2017, ended the year with a flourish. The 5.7% growth rate the category enjoyed is largely thanks to a much better line up of consumer electronics products, including the latest iPhones and a host of new Amazon devices. Strong promotional activity, especially on products like home speakers, stimulated consumer interest and drove volume across many retailers.
Notably, both home and electronics are categories where individual items can be expensive. That they did well underlines the fact that consumer confidence across the period was very strong. Our weekly tracker shows consumers ended the year on a high for sentiment about their household finances and the economy in general. This was extremely helpful in driving trade over the holiday period.
Smaller ticket sectors like clothing did reasonably well, although growth of 1.1% puts the sector near the bottom of the holiday league table. Given that the cold weather was mostly helpful to retailers over December, the issue in apparel is that consumers are bored with offers that appear samey and undifferentiated and so they are not driven to buy. This, in turn, leads to excessive discounting which reduces sales values and growth.
In keeping with its status across most of 2017, sporting goods remained a challenged part of the market with sales declining by 1.5% on a year-over-year basis. Except for Lululemon and a few other players, there was a lack of inspiration and excitement in the segment this holiday which made it easy for consumers already saturated with sports apparel and footwear to either shun making purchases or to do so at generalist players like department stores.
After a strong end to the year, all eyes now turn to 2018. From a confidence point of view, the year has started well with consumer optimism rising further. In our opinion, bonuses and raises which have come off the back of the tax cuts will likely support spending through the early months of the year. Growth may drop back from holiday levels but will remain above average.