There’s never a boring day in retail. This is especially true under the Trump administration. There are many changes in the works with different moving parts. Here is a quick overview of different laws, policies, and agreements currently up for debate and how they may impact retail.
Online Sales Tax
The issue of online sales tax has been bubbling under the surface for years. Now, it is finally coming to a head with the Supreme Court hearing of South Dakota v. Wayfair Inc. The current tax code precedent is from the era of mail-order catalogs and doesn’t require retailers to collect sales tax unless they have a physical presence in that state (nexus). This means many customers who purchase products online are not required to pay sales tax if the company they’re ordering from is in another state. In South Dakota v. Wayfair, the state is suing Wayfair for uncollected sales tax.
A decision is expected around the end of June. The expectation is that the Supreme Court will overrule the current precedent, but it is unclear what exactly the replacement will be. Any changes will have a huge impact on online retailers, especially those who use online marketplaces such as Amazon.
Matthew Shay, president of the National Retail Federation said in a press release last month that normally, trade “would go little noticed in the media and elsewhere,” but that this year, “trade is suddenly one of the biggest headlines in the news.”
Earlier this spring, Trump announced tariffs on $50 billion worth of Chinese imports. The tariff was prompted by intellectual property disputes, which have been a problem for American retailers for years. While addressing intellectual property issues is a big win for American retailers and small businesses, the tariffs are another story.
Many direct-to-consumer goods are not on the tariff list. However, products like aluminum, pulleys, machine parts, and more are on the list, which could raise costs for the manufacturing and packaging of consumer goods. Shay continues, “This entire process creates uncertainty and makes it difficult for retail companies that must rely on complicated global supply chains. Tariffs threaten to hurt consumers, jeopardize job creation and increase the cost of doing business here in the United States.”
However, on April 30th, the White House postponed a decision to impose tariffs on US imports of steel and aluminum from the EU, Canada, and Mexico. On May 13th, Trump also came to the aid of a Chinese technology company that effectively shut down because of American sanctions. Overall, this could indicate a lighter touch on tariffs going forward. But, there is no way to be sure as these things can change on a dime.
It’s no secret that the United States Postal Service has struggled over the past few years. In December the Postal Regulatory Commission determined that the current USPS pricing system doesn’t allow the organization to be financially stable. For the new budget, President Trump made adjustments that allow the agency to reduce costs and increase profits. This includes the option of reducing deliveries from six days a week to five, allowing USPS to shift more deliveries from doorstep to curbside and centralized locations, and most notably a one-time postal rate increase that outpaces the rate of inflation.
Nothing is finalized at this point. But, consumers have high expectations around shipping costs and delivery speeds. Retailers would be hard-pressed to pass any postal rate increase onto consumers or utilize other delivery providers.
The North American Free Trade Agreement (NAFTA) is an agreement between the United States, Canada, and Mexico signed on January 1, 1994. Conceived by President Reagan, the goal of the agreement was to eliminate trade and investment barriers between the three nations. NAFTA is also the largest free-trade agreement in the world. President Trump blames the deal for manufacturing job losses and an overall trade deficit with Mexico.
The National Retail Federation argues that many delicate supply chains were built around NAFTA and withdrawing altogether could cause disruptions for retailers of all sizes. A withdrawal from NAFTA would also mean tariffs on imported goods and therefore higher prices for consumers. NAFTA also makes it easier for online retailers to sell to customers in Canada and Mexico.
Back in 2015, the Federal Communications Commission passed a net neutrality order after several legal battles with broadband providers. The order requires internet service providers to treat all content equally. In other words, they can’t block or slow down access to certain websites or streaming services or speed up other sites via “fast lanes.”
In December 2017 the FCC repealed the net neutrality order, and the repeal will go into effect June 11th of this year. While broadband providers all promise to play nice, many of them were caught violating neutrality practices in the past. The main concern is that internet providers will allow some companies to pay for priority treatment via “fast lanes” and that over time companies that can’t pay for “fast lanes” or aren’t offered access to them will become inaccessible to consumers, or at the very least less convenient than companies in the “fast lanes.” For retailers, the repeal of net neutrality means that smaller companies could have an even harder time competing against big brands that pay for more access.
The Tax Cuts and Jobs Act was the first major tax reform in 30 years. The bill officially became law in December 2017, and businesses across the country and starting to feel the effects. The corporate tax rate dropped from 31 to 25 percent. Though the bill focuses on larger corporations, there are still some benefits for small businesses. For smaller companies, such as independent retailers, there is a 20 percent deduction for qualifying pass-through businesses.
Though the National Federation of Independent Businesses initially said they could not support the bill, they have since said the bill helps the economy by providing significant tax relief to small businesses.
At press time, all of these various programs remain in motion and will continue to develop over the summer. Here at Independent Retailer, we will continue to monitor the changes and report back to you as events unfold.