The Internet Sales Tax Is Too Late to Help Best Buy's Stock
May 12th 2013 1:30PM
Updated May 13th 2013 1:00AM
Having cratered in value as the effects of "showrooming" decimated sales, Best Buy'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 and 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, 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 -- 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. 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.
It also serves as a barrier to competition. While the bill as passed exempts the small mom-and-pop shops with less than $1 million in sales, the real threat to Amazon, eBay, and even Best Buy is in the growing businesses with sales in excess of that level but without the wherewithal to negotiate and lobby with state politicians on carve-outs, as Amazon has been able to do.Â
And the leveled playing field -- should the sales tax make it through the House of Representatives -- won't help Best Buy, because it's already so far behind in the score. Having largely decided that its future is in mobile phones and will devote most of its resources toward that end, the electronics big box has openly embraced the concept of showrooming.
At this stage of the game, Amazon has played both sides of the field, and it will be the consumer -- and taxpayer -- who lose out if the Internet sales tax becomes law.
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The article The Internet Sales Tax Is Too Late to Help Best Buy's Stock originally appeared on Fool.com.Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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