Having cratered in value as the effects of “showrooming” decimated sales, Best Buy Co., Inc. (NYSE:BBY)‘s stock has staged a remarkable recovery in 2013, already having more than doubled in value. With the passage in the U.S. Senate of the so-called Internet sales tax — its formal name is the Marketplace Fairness Act — investors are hoping this trend of greater growth (or at least stock price appreciation) can continue if the playing field is leveled for all retailers.
As is well known at this point, online retailers such as Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY) had their growth potential early on bolstered by their ability to avoid paying sales taxes on purchases made in states where they didn’t have a physical presence. Best Buy Co., Inc. (NYSE:BBY), Circuit City, Sixth Avenue Electronics — retailers in general, and not just sellers of electronic consumer goods — were placed at a competitive disadvantage because the prices consumers paid were elevated relative to those paid at online sellers.
A uniform application of state sales taxes, it was argued, would make the system more fair and even simpler while also going a long way to shoring up the coffers of financially strapped states. It’s estimated between $22 billion and $24 billion will flow annually into state treasuries.
It seems a win-win-win situation in terms of fairness, equity, and financial stability, so what’s not to love?
First, the revenue side of the states’ financial situation has never been the issue: They collected almost 2% more in 2012 than they did in 2007 and 35% more than they did in 2002. According to the U.S. Census Bureau, states collected $242.7 billion in sales and gross receipts taxes in 2012, up from $238.3 in 2007, and $179.7 billion higher than in 2002. Looked at another way, over the past decade, state sales taxes have grown at a compounded annual rate of 3.4%, a period marred by the Great Recession, yet still they continued to rise.
So the idea that states aren’t getting their “fair share” is simply bogus, and no one really thinks that sending more money to state politicians will actually be used to plug budget holes and won’t just finance more new spending programs, exacerbating an already dire situation. Less spending, not more revenue, is the cure for the states’ ills.
Second, the companies that had been most vociferous in their opposition to the sales tax — think Amazon and eBay Inc (NASDAQ:EBAY) — are now on board. When they were growing and striving to make their mark in the marketplace, they were staunchly opposed to having their knees cut out from under them. Now they want to cut the knees out from under their rivals.Â
The sales tax is no longer a factor for Amazon.com, Inc. (NASDAQ:AMZN). Its warehouse system is already a more efficient system than those offered by the bricks-and-mortar types because they can be located in low-cost areas without the need for staffing with sales personnel and the other trappings a retail operation has.