Congress Needs To Catch Up To Modern Retailing
Much of the retail world has closely watched recent events unfold in South Dakota over online sales taxes and nexus issues. South Dakota is leading the opposition against an arcane legal precedent that limits which retailers can be compelled by states to remit sales taxes for purchases consumers make online.
The established case law states a seller must be “physically present” in a state in order to be subject to the same rules and regulations as their in-state competitors. While this standard may have made sense last century, with today’s vibrant e-commerce economy, the situation seems notably out of touch with reality. It appears the case may be on its way to the U.S. Supreme Court where states and the retail community may finally get some long-awaited clarity and closure on the issue.
South Dakota
South Dakota serves as a cautionary tale about how issues critical to the future of the retail business model need to be addressed proactively, or else businesses will suffer. For context, back in 1992, the Supreme Court invited Congress to exercise its authority over interstate commerce and ensure that all sellers would be treated equally under the law.
Policymakers chose (or failed, depending on who you ask) not to act. Some argued that in order to spur the growth and development of the Internet, it should remain tax free, in effect providing e-commerce a leg up on traditional retail.
Fast forward twenty-five years and that “leg up” was an important mix of factors that has allowed companies like Amazon to overtake many of the country’s largest retailers. At some point (and we can argue over when), policymakers should have leveled the playing field to match the new reality. As is usually the case, our fearless congressional leaders in D.C. have continued to avoid their responsibilities and failed to update the law.
Courts
Facing declining revenues and continual frustration with the powers that be in Washington, states have turned to the courts. So an issue that is so fundamentally important to online and bricks-and-mortar retailers has taken a quarter century to resolve and there is still a long road ahead. And the main culprit is congressional inaction, shocking as that may be.
We are in a fundamentally different place as a retail community than we were in 1992. The pace of change and innovation is not measured in years and decades but in days and weeks. And the gap between the modern marketplace and our current tax and regulatory scheme is no longer a gap--it’s a chasm. Unless policymakers vigorously enter this space, Main Street and online retailers – and their customers – will suffer.
Consider some of the emerging issues in retail right now with regard to online commerce. Consumer access is at the top of the list. Consumers need the ability to shop across multiple mediums and multiple platforms. But large players like Amazon have a vested interest in limiting those choices and increasing the likelihood that a consumer will have to navigate across one of their platforms to get their desired outcome. Basically, Amazon is trying to buy up every house in the neighborhood ensuring that to get from point A to point B, you eventually have to cut across their yard.
Last Mile Delivery
Another major focus for retailers over the next few years is last mile delivery. Whether via autonomous vehicle, uber, drone, or robot, the effort to master home delivery is front of mind for most major retailers. If decision makers decide to put their collective heads in the sand for the next few years (much less 25) on this topic, regulatory questions dealing with public safety, insurance, and indirect revenue will go unanswered and unnecessary chaos will stifle innovation.
As a general rule, business owners tend to be a little more economically conservative than most and reflexively want government at all levels to adopt a more hands-off approach. When it comes to the modern online and gig economy, Congress is certainly doing that. To the point that we are not really sure they know this is happening. If in the name of innovation they adopt a posture of letting the online marketplace become the wild, wild west, then at the end of the day, only Amazon and painfully few others with be left standing. And that is something that the retail community cannot allow to happen.
Politically, we need to educate lawmakers and regulators at all levels of government that smart, proactive engagement in this space is what is needed to protect consumers and the small and large businesses that serve them. That their hands-off approach will not foster innovation but rather stifle it. And that it’s critical to protecting jobs on Main Street.
Most of Congress is still intellectually stuck in the “taxing of the Internet” mindset that has defined the conversation for far too long. While once the key issue, it has been overtaken by a host of other more important issues that challenge the stability of the bricks-and-mortar model as well as the ability of start-ups to gain entry into the market. Congress needs to get real smart in this space very quickly or else we will find ourselves in a retail environment where the market is controlled by a few players, consumers have limited choice, and consequently, the opportunity for innovation diminishes.
Joe Kefauver is managing partner of Align Public Strategies, a full-service public affairs and creative firm that helps corporate brands, governments and nonprofits navigate the outside world and inform their internal decision-making.