The woman walked into Cash Hogen’s hardware store last fall to ask a single question about a KitchenAid mixer on display: What did the manufacturer call that color scheme?
“Tangerine,” replied Hogen. And with that, the woman walked out.
It is a kind of customer interaction that happens often these days, said Hogen, who has run his store in Pierre, South Dakota’s downtown historic district since 1983.
People come in to look at a product, ask a question or two, then leave, presumably to search for it more cheaply online. Retailers even have a name for the practice:“showrooming.” “It’s just a gut feeling that she’s not buying it from me,” he said.
One reason customers shop elsewhere, Hogen says, is that even when he can compete on price, he has to charge sales tax, which ups the ultimate price of his merchandise. The mixer, for example, normally has a $399.99 price tag in Hogen’s store, on top of which he has to charge $26 in state and local sales taxes. Some online retailers sell the mixer at the same price or lower, with no sales tax and free shipping.
That sales tax differential is at the core of a case that will come before the U.S. Supreme Court on April 17, and the stakes are high not only for store-keepers like Hogen, but also for online retailers, for state governments and for bargain-hunting consumers.
The case stems from a South Dakota law passed in 2016 by legislators at the state capitol building a few blocks from Hogen’s store that requires out-of-state online retailers to collect state sales taxes.
The state enacted the law knowing it would be challenged, due to a 1992 Supreme Court ruling in the case of Quill Corp v. North Dakota, which held that states cannot require retailers to collect sales taxes unless they have a“physical presence” in the state.
Passing a law certain to draw fire was“the nuclear option,” said Republican state Senator Deb Peters, a prominent supporter of the measure, but legislators considered it necessary as internet sales continue to rise.
After the law was enacted, the state preemptively sued four online retailers. Overstock.com Inc, Wayfair Inc and Newegg Inc contested the lawsuits, while the fourth company, Systemax Inc, decided not to. After losing in lower courts, South Dakota appealed to the Supreme Court, which announced in January it would hear the case.
The state will argue that the legal precedent dates back to the days of catalog sales and is no longer relevant in the internet age.
A ruling in favor of South Dakota could funnel up to $13 billion a year of new tax revenues into the coffers of affected U.S. state governments, according to a 2017 federal government report.
It would also make it harder for consumers to find deals online where they can avoid paying sales tax.
Hogen is following the Supreme Court action, but while a favorable ruling for the state might help him, he said, he knows a single court ruling cannot reverse the e-commerce trend.
“If this sales tax thing goes through, it’s not going to end internet shopping,” he said.“That’s here to stay.”