South Bend area merchants pleased by Supreme Court decision

It might take some time before states figure out how to collect sales taxes on a larger percentage of online purchases.

But with billions of dollars in tax revenue at stake, rest assured they’ll be motivated to figure it out as quickly as possible.

On Thursday, the Supreme Court gave a green light for states to collect sales taxes on all online purchases, reversing a 1992 decision that precluded states from collecting taxes from retailers unless they had a physical presence within their borders.

For Indiana alone, the jackpot could range anywhere $100 million to $250 million in tax revenues that are lost each year when Hoosiers make purchases with online retailers that don’t collect the tax, said Michael Hicks, an economist at Ball State University.

Though shoppers are technically supposed to reimburse the government for those unpaid taxes, few do — resulting in lost state income that might allow the government to reduce taxes or use the money for new initiatives.

Angie Raymond, an associate professor of business law and ethics at the Indiana University Kelley School of Business, said the Supreme Court indicated it didn’t take the reversal of a previous decision lightly and that the narrow 5-4 margin shows it is still somewhat conflicted.

But Raymond said the original decision was written at a time when almost everyone was opposed to hindering the growth of the nascent online retail sector.

Today, online shopping accounts for about 10 percent of retail sales, and it’s growing each day.

“So now the idea of taxing such purchases makes a lot of sense,” said Hicks, adding that states will have to figure out how to enforce the collection of sales taxes by out-of-state businesses and whether to exempt the smallest businesses until they reach a certain size.

Though it sounds daunting for a business to figure out what is taxable and how much tax should be applied, most experts believe computer programs could be developed that would handle those concerns.

The largest retailers such as Walmart could have an initial advantage compared to small retailers because they already know the sales tax intricacies in most locales because of their enormous footprints, Hicks said.

One benefit of the ruling is that states might eventually be motivated to create some uniformity in terms of what items are taxable so that it isn’t too daunting for online retailers to offer their goods to residents in those states, Hicks added.

Bricks and mortar

Whether it’s a big-box chain or a small locally owned business, bricks-and-mortar businesses were generally thrilled by the Supreme Court decision since they’ve been under growing pressure from online retailers in recent years.

Many have already succumbed and others are struggling.

“It finally levels the playing field,” said Jack St. Pierre, owner of Gene’s Camera Store. Initially, the camera business was hit by the rise of digital photography, which resulted in an enormous drop in demand for film and processing services.

Though that change was unavoidable, Gene’s Camera has since been hurt by online retailers that might offer the same product at the same price as his store but have the advantage of not having to collect the 7 percent Indiana sales tax.

“I might spend an hour with a person showing them the features on a camera,” he said. “They say they want to think about it and leave the store.

“But some people never return.”

St. Pierre is pretty certain that some of those people just came to his store in South Bend or Mishawaka just to learn more about a piece of equipment before returning home to buy it online.

And the savings can be a couple of hundred dollars on a top-end digital camera that costs upwards of $3,000.

“I think it really hurts us on the expensive equipment,” said St. Pierre. “I’m grateful we finally have the possibility for a more level playing field, but it’s amazing that this has been allowed to go on for so long.”

Similar sentiments were echoed by Madison Knight, owner of Van Horne Jewelers at Heritage Square in Mishawaka. He said he’s pretty sure he has had visitors who use his store to gather information before making a purchase from an online retailer.

Whether it’s a ring, a watch or another piece of expensive jewelry, the savings can be substantial for those seeking to avoid the sales tax.

Knight estimated that about 10 percent to 20 percent of his business has been affected by online retailers, but he said it would be worse if there wasn’t a sentiment attached to the purchase of a piece of jewelry.

“A man who involves his wife or girlfriend in the decision process is going to be a lot happier down the road than the person who just buys something online,” said Knight, adding that many top-tier watchmakers also try to protect retailer by trying to eliminate the online sale of their products.

But to have survived this long in a retail environment that has taken down many mighty chains, St. Clair and Knight agreed that a successful small business has to offer service and other benefits that follow after the sale.

“The merchants who pay local taxes and employ local people have hurt by online retailers,” said St. Clair. “The inability of the state to collect those revenues has hurt the state.

“The potholes will attest to that.”