Exclusive: Supreme Court Decision Expected to Help South Carolina Retailers

Richard Breen

Thursday, June 28th, 2018

It’s called “showrooming” and Tim Robertson knows it happens at his Columbia sporting goods store.

“You’ll see them taking pictures with their phone or looking things up,” Robertson said of some customers at Todd & Moore. Showrooming refers to customers who visit a brick-and-mortar store to inspect an item with the intent of going online to purchase the item for less.

One of the reasons buying online costs less is because many e-commerce sites don’t charge sales tax. That’s going to change following a recent U.S. Supreme Court decision.

The court ruled that state and local governments can seek to collect sales tax from businesses that sell to customers in that state, even if the business doesn’t have a physical presence or employees there.

Many are calling it a win for state and local governments, who were missing out on revenue, and small businesses, who felt they were competing on an uneven playing field. There’s much work to do before the first new dollar is collected in South Carolina, and varying opinions regarding the impact on brick-and-mortar businesses.

The Palmetto State was already receiving sales tax payments from big online retailers such as Amazon.com Inc., which has operations in North Charleston, Spartanburg and West Columbia. South Carolina law currently states that if you buy something online and don’t pay sales tax at the time of purchase, you’re supposed to self-report it on your income tax return.

However, many consumers either deliberately don’t report what they owe, don’t know they’re supposed to report it, don’t keep records to calculate it, or forget whether they made an online purchase during the previous tax year. A 2017 report by the Government Accountability Office estimated South Carolina could receive between $132 million-$193 million in sales tax revenues by closing the loophole.

“Those are some pretty substantial numbers,” said Reba Campbell, deputy executive director with the Municipal Association of South Carolina, which has followed the issue for several years.

Campbell said it’s not just about the tax revenue.

“The success of small business is tied very directly to the success of our cities,” she said.

Now it will be up to state governments to determine new tax collection rules.

“We’re going to have bipartisan meetings to make sure the bill we file in January is consistent with the Supreme Court decision and to close any loopholes,” said state Sen. Marlon Kimpson, who represents portions of Charleston and Dorchester counties. “Our laws need to keep up with the shopping habits of people.”

Much has been made of longtime national retail chains such as Radio Shack and Toys “R” Us struggling in the internet age.

“Retail is not dead, but it took a couple of serious body blows,” said Bob Hughes of Hughes Development Corp. “I think we’re seeing a resurgence now.”

Hughes’ firm has created several real estate projects in Greenville where retail was a component. It is also developing BullStreet in Columbia, which expects to have a large retail presence on its 181 acres.

With consumers balancing factors such as convenience, price, selection and the overall shopping experience, Hughes said he sees advantages for both online and brick-and-mortar retail.

“It’s hard to beat the convenience of clicking on something,” Hughes said. “In our mixed-use developments, we’re about the experience.”

The Supreme Court ruling is “going to be a boost” for brick-and-mortar, Hughes said. “If sales tax is not an issue, why does so much business get done on the sales tax holiday?”

South Carolina holds an annual sales-tax-free weekend for back-to-school shopping. This year, it’s Aug. 3-5.

One question is how smaller e-retailers will handle tax collection for thousands of jurisdictions across the U.S.

“A little online startup may not have that ability,” said Dr. Frank Hefner, director of the Office of Economic Analysis at the College of Charleston.

The case before the court was South Dakota v. Wayfair. In his majority opinion, Justice Anthony Kennedy pointed out that South Dakota “…provides sellers access to sales tax administration software paid for by the state. Sellers who choose to use such software are immune from audit liability…”

Hefner said it’s hard to find data that can specifically measure the impact of the sales tax disparity, but “you can certainly sympathize with the local businesses that are competing with out-of-state retailers.”

Robertson is one of them.

“I’ll be very glad when it is corrected,” he said. “I think it will bring a lot of business back to the brick-and-mortars.”