The Kirkland Bicycle Shop in downtown is losing customers and transactions because of online businesses’ lack of required sales tax.
Co-owners Josh Harris and Neil Wechsler, who also manage a couple of bike shops around Puget Sound, say the trend is worse in Kirkland, “for sure.”
“It’s probably every place, but I think here, with the number of Microsoft and Google employees, there’s probably a little more focus on this,” said Wechsler.
Harris and Wechsler say it’s not uncommon to spend time with a customer before he or she turns around and says they can buy it cheaper somewhere else, usually through the Internet.
U.S. Congresswoman Suzan DelBene, Representative of Washington’s 1st Congressional District, learned of the Kirkland Bicycle Shop’s struggles, and other Kirkland businesses, during her tour to discuss the need for the Marketplace Fairness Act on Thursday.
“There’s nothing in the legislation that impacts federal revenue at all,” DelBene said. “This is all about putting policy in place so that state and local government are allowed to collect their sales taxes.”
Although the legislation has been floating around Congress for years, on March 22, in a bipartisan vote, the U.S. Senate unexpectedly passed an amendment to the Senate budget, which allows states to require out-of-state online retailers to collect sales taxes.
“We have bipartisanship support on the House bill too,” said DelBene, who is a co-sponsor of the House legislation and a member in the Judiciary Committee where the bill is currently being heard. “We have huge support from the small business community, from large retailers, to even online retailers. I think many businesses really want to see this applied consistently across the country.”
DelBene also worked on this issue when she she was the director of the Department of Revenue.
Jan Teague, president of the Washington Retail Association said retailers across the state have seen sales drop every year because of the increased competition with online shopping.
“It’s been a very serious problem for a lot of smaller retailers, who simply can’t compete,” Teague said. “They’re just struggling to survive.”
Teague said there needs to be relief to brick and mortar retailers so they’re hiring people. She notes they pay property taxes, Business and Occupation taxes and contribute to various community events.
“We’re the lifeblood of our community,” Teague said. “The online retailers have none of those feelings toward communities or obligations toward communities.”
DelBene countered that some of the small and large businesses have both an online and a local presence.
“It’s not just purely brick and mortar versus online,” she said. “People are having a combination of both, and those who have a brick and mortar facility have a different online obligation than those who don’t.”
But larger retailers such as REI, which has 130-odd stores in 32 states, are also striving to compete in an “unequal playing field.” The “clicks and mortar” business has had serious issues selling items in their showrooms, despite hours employees spend helping customers.
“We are investing heavily in our online stores and the online experience so we don’t lose sales,” said Marc Berejka, REI government affairs director, who was in Kirkland for the tour. “But we have our store managers who are having the same exact showroom problem.”
Berejka recalls a conversation when one of his store managers told him he spent 45 minutes helping a customer decide the fit and style of two pairs of ski boots, only for the man to turn around and announce he had decided to buy the ski boots online. He was on his iPad at the time, using the store’s free Wifi.
“One of the things about Americans is they like a deal,” said Berejka. “And some people, they’re like ‘hey, if I don’t have to pay tax, that’s a better deal.’ There’s something emotional about that. But for us, this is a real loss in sales.”
For the consumer, it’s maybe a 10 percent save in price.
Currently, only a few states have laws working to close the Internet tax loophole but most customers in this country do not pay sales tax on Internet commerce. DelBene said not only does this impact businesses, but government services, such as public education, as well.
“It ends up being a lost revenue in a place where we’re having these discussions on how do we fund education,” DelBene said. “A lot of revenue for the state in particular and for local governments is going away because of these challenges.”
If Congress were to enact the federal legislation, the Department of Revenue estimates Washington could collect up to $284 million in the 2013-15 biennium and $845 million in 2015-17 biennium.
“It’s a head scratcher when you read the paper and you see these shortfalls in education funding and then you know that there’s this massive leakage of revenue as the result of federal policy,” Berejka said. “We’ve got to fix that.”
